Hostname: page-component-cd9895bd7-jn8rn Total loading time: 0 Render date: 2024-12-26T03:54:34.915Z Has data issue: false hasContentIssue false
  • English
  • Français

The Problem of Unilateralism in Agency Theory: Towards a Bilateral Formulation

Published online by Cambridge University Press:  28 February 2017

Sareh Pouryousefi  and
Jeff Frooman
Sareh Pouryousefi
Affiliation:
University of Nottingham
Jeff Frooman
Affiliation:
University of New Brunswick
Get access Rights & Permissions [Opens in a new window]

Abstract:

Some business ethicists view agency theory as a cautionary tale—a proof that it is impossible to carry out successful economic interactions in the absence of ethical behaviour. The cautionary-tale view presents a nuanced normative characterisation of agency, but its unilateral focus betrays a limited understanding of the structure of social interaction. This article moves beyond unilateralism by presenting a descriptive and normative argument for a bilateral cautionary-tale view. Specifically, we discuss hat swaps and role dualism in asymmetric-information principal-agent relationships and argue that the norm of reciprocity can function as a moral solution to agency risks in adverse-selection and moral-hazard problems. Our bilateral cautionary-tale formulation extends the normative boundaries of agency theory, while leaving the fundamental economic assumptions of agency theory intact.

Keywords

agency theorycautionary-tale viewbilateral agencyasymmetric informationreciprocity
Type
Articles
Information
Business Ethics Quarterly , Volume 27 , Issue 2 , April 2017 , pp. 163 - 182
Copyright
Copyright © Society for Business Ethics 2017 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Akerloff, G. 1982. Labor contracts and partial gift exchange. Quarterly Journal of Economics, 84: 488–500.Google Scholar
Alchian, A. A., & Demsetz, H. 1972. Production, information costs, and economic organization. The American Economic Review, 62(5): 777–795.Google Scholar
Arrow, K. J. 1963. Uncertainty and the welfare economics of medical care. American Economic Review, 53(5): 941–973.Google Scholar
Arrow, K. J. 1985. The economics of agency. In Pratt, J. W. & Zeckhauser, R. J. (Eds.), Principals and agents: The structure of business: 37–51. Boston, MA: Harvard Business School.Google Scholar
Axelrod, R. 1984. The evolution of cooperation. New York: Basic Books.Google Scholar
Bhattacharyya, S. & Lafontaine, F. 1995. Double-sided moral hazard and the nature of share contracts. RAND Journal of Economics, 26(4): 761–781.CrossRefGoogle Scholar
Boatright, J. 1999. Ethics in finance: Critical issues in theory and practice. Oxford: Blackwell.Google Scholar
Boatright, J. R. 2007. Is there an internal morality of contracting? Academy of Management Review, 32(1): 293–295.Google Scholar
Bosse, D. A., Phillips, R. A., & Harrison, J. S. 2009. Stakeholders, reciprocity, and firm performance. Strategic Management Journal, 30(4): 447–456.CrossRefGoogle Scholar
Bosse, D., & Phillips, R. 2016. Agency theory and bounded self-interest. Academy of Management Review, 41(2): 276–297.CrossRefGoogle Scholar
Bowie, N. E., & Freeman, R. E. (Eds.). 1992. Ethics and agency theory. Oxford: Oxford University Press.Google Scholar
Braybrooke, D. 1976. The insoluble problem of the social contract. Dialogue, 15: 3–37.CrossRefGoogle Scholar
Buchanan, A. 1996. Toward a theory of the ethics of bureaucratic organizations. Business Ethics Quarterly, 6(4): 419–440.Google Scholar
Chang, J-J, Lai, C-C, & Lin, C-C. 2003. Profit sharing, worker effort, and double-sided moral hazard in an efficiency wage model. Journal of Comparative Economics, 31(1): 75–93.CrossRefGoogle Scholar
Clarke, R. C. 1985. Agency costs versus fiduciary duties. In Pratt, J. W. & Zeckhauser, R. J. (Eds.), Principals and agents: The structure of business: 55–79. Boston: Harvard Business School.Google Scholar
Dees, J. G. 1992. Principals, agents and ethics. In Bowie, N. E. & Freeman, R. E. (Eds.), Ethics and agency theory: 22–58. Oxford: Oxford University.Google Scholar
Donaldson, T. 2012. The epistemic fault line corporate governance. Academy of Management Review, 37(2): 256–271.Google Scholar
Dybvig, P., & Lutz, N. A. 1993. Warranties, durability, and maintenance: Two-sided moral hazard in a continuous-time model. Review of Economic Studies, 60(3): 575–597.CrossRefGoogle Scholar
Eisenhardt, K. M. 1989. Agency theory: An assessment and review. Academy of Management Review, 14(1): 57–74.Google Scholar
Elitzur, R., Gavious, A., & Wensley, A. K. 2012. Information systems outsourcing projects as a double moral hazard problem. Omega, 40(3): 379–389.Google Scholar
Fama, E. F. 1980. Agency problems and the theory of the firm. Journal of Political Economy, 88: 288–307.Google Scholar
Fehr, E., & Gächter, S. 2000. Fairness and retaliation: The economics of reciprocity. Journal of Economic Perspectives, 14: 159–181.Google Scholar
Ferraro, F., Pfeffer, J., & Sutton, R. I. 2005. Economics language and assumptions: How theories can become self-fulfilling. Academy of Management Review, 30: 8–24.CrossRefGoogle Scholar
Fuller, L. 1964. Morality of law. New Haven: Yale University.Google Scholar
Gauthier, D. 1986. Morals by agreement. Oxford: Clarendon.Google Scholar
Ghoshal, S. 2005. Bad management theories are destroying good management practices. Academy of Management Learning & Education, 4: 74–91.Google Scholar
Ghoshal, S., & Moran, P. 1996. Bad For practice: A critique of transaction cost theory. Academy of Management Review, 21: 13–47.Google Scholar
Gürtler, O. & Kräkel, M. 2008. Double-sided moral hazard, efficiency wages, and litigation. Journal of Law, Economics, and Organization, 26(2): 337–364.CrossRefGoogle Scholar
Hausman, D. M., & McPherson, M. S. 1996. Economic analysis and moral philosophy. Cambridge: Cambridge University Press.Google Scholar
Heath, J. 1996. Rational choice as critical theory. Philosophy and Social Criticism, 22: 43–62.Google Scholar
Heath, J. 2006. Business ethics without stakeholders. Business Ethics Quarterly, 16(3): 533–557.Google Scholar
Heath, J. 2009. Uses and abuses of agency theory. Business Ethics Quarterly, 19(4): 497–528.Google Scholar
Heath, J. 2013. The structure of intergenerational cooperation. Philosophy & Public Affairs, 41(1): 31–66.Google Scholar
Hobbes, T. 1651/1994. Leviathan. Curley, E. (Ed.). Indianapolis: Hackett.Google Scholar
Hoenen, A. K., & Kostova, T. 2015. Utilizing the broader agency perspective for studying headquarters–Subsidiary relations in multinational companies. Journal of International Business Studies, 46(1): 104–113.Google Scholar
Hume, D. 1888/1978. A treatise of human nature. Selby-Bigge, L. A. (Ed.). Oxford: Clarendon.Google Scholar
Husted, B. W. 2007. Agency, information, and the structure of moral problems in business. Organisation Studies, 28(2): 177–195.Google Scholar
Jensen, M. C. 1983. Organization theory and methodology. Accounting Review, 50: 379–40.Google Scholar
Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4): 305–360.CrossRefGoogle Scholar
Kahneman, D., Knetsch, J., & Thaler, R. 1986. Fairness as a constraint on profit-seeking: Entitlements in the market. American Economic Review, 76(4): 728–741.Google Scholar
Khurana, R. 2007. From higher aims to hired hands: The social transformation of American business schools and the unfulfilled promise of management as a profession. Princeton: Princeton University Press.CrossRefGoogle Scholar
Khurana, R., Nohria, N., & Penrice, D. 2005. Management as a profession. In Lorsch, J. W., Berlowizt, L., & Zelleke, A. (Eds.), Restoring trust in American business. 43–60. Cambridge, MA: MIT.Google Scholar
Kim, S. K., & Wang, S. 1998. Linear contracts and double moral hazard. Journal of Economic Theory, 82: 342–378.Google Scholar
Knight, F. 1921. Risk, uncertainty and profit. Hart, Schaffner & Marx Prize Essays, 31. New York: Houghton, Mifflin.Google Scholar
Kulik, B. W. 2005. Agency theory, reasoning and culture at Enron: In search of a solution. Journal of Business Ethics, 59(4): 347–360.Google Scholar
Laffont, J. J., & Martimort, D. 2002. The theory of incentives: The principal-agent model. Princeton, NJ: Princeton University.CrossRefGoogle Scholar
Mann, D. P., & Wissink, J. P. 1990. Money-back warranties vs. replacement warranties: A simple comparison. American Economic Review, 80(2): 432–436.Google Scholar
Milgrom, P., & Roberts, J. 1992. Economics, organization and management. Upper Saddle River, NJ: Prentice Hall.Google Scholar
Mishra, D. P. 2010. Marketing and the global financial crisis of 2008: A theoretical analysis. Problems and Perspectives in Management, 8(4): 127–136.Google Scholar
McCormick, H. 2009. Intergenerational justice and the non-reciprocity problem. Political Studies, 57: 451–458.Google Scholar
Mitnick, B. M. 1992. The theory of agency and organizational analysis. In Bowie, N. E. & Freeman, R. E. (Eds.), Ethics and agency theory: An introduction: 75–96. New York: Oxford University Press.Google Scholar
Noreen, E. 1988. The economics of ethics: A new perspective on agency theory. Accounting, Organizations and Society, 13(4): 359–369.Google Scholar
Orts, E. W. 1998. Shirking and sharking: A legal theory of the firm. Yale Law and Policy Review, 16(2): 266–329.Google Scholar
Perrow, C. 1986. Complex organizations: A critical essay. New York: Random House.Google Scholar
Rasmusen, E. 1994. Games and information (2nd ed.). Oxford: Blackwell.Google Scholar
Rawls, J. 2005. Political liberalism (Expanded ed.). New York: Columbia University Press.Google Scholar
Reid, J. D. 1977. The theory of share tenancy revisited – Again. Journal of Political Economy, 85(2): 403–407.Google Scholar
Romano, R. E. 1994. Double moral hazard and resale price maintenance. RAND Journal of Economics, 25(3): 455–466.Google Scholar
Ross, S. A. 1973. The economic theory of agency: The principal’s problem. American Economic Review, 62(2): 134–139.Google Scholar
Rubin, P. H. 1978. The theory of the firms and the structure of the franchise contract. Journal of Law and Economics, 21: 223–233.Google Scholar
Salanié, B. 1997. The economics of contracts. Cambridge, MA: The MIT Press.Google Scholar
Seog, S. H. 2010. Double-sided adverse selection in the product market and the role of the insurance market. International Economic Review, 51(1): 125–142.Google Scholar
Sharma, A. 1997. Professional as agent: Knowledge asymmetry in agency exchange. Academy of Management Review, 22(3): 758–798.Google Scholar
Soberman, D. A. 1997. Product warranties and double adverse selection . INSEAD working papers. http://www.insead.edu/facultyresearch/research/doc.cfm?did=46550.Google Scholar
Solomon, R. C. 1999. Game theory as a model for business and business ethics. Business Ethics Quarterly, 9(1): 11–30.Google Scholar
van Oosterhout, J. H., Heugens, P. P. M. A. R., & Kaptein, M. 2006. The internal morality of contracting: Advancing the contractualist endeavor in business ethics. Academy of Management Review, 31(3): 521–539.Google Scholar
Walsh, J. P., & Steward, J. K. 1990. On the efficiency of internal and external corporate control mechanisms. Academy of Management Review, 15(3): 421–458.CrossRefGoogle Scholar