A Survey of Agency Models of Organizations
Abstract
The intent of this essay is to explicate the structure of the agency model of organizations and to discuss the results of this literature in the context of the above issues in organizational theory. Section 2 develops the basic mathematical formulations of the agency relationship and discusses the application of the revelation principal to agency problems. The implications of the optimal compensation function for risk-sharing and the possibility of achieving the first-best outcome are discussed in Section 3. A salient feature of employment relationships is that there are winners and losers. Section 4 explores the role of dichotomous contracts and more generally, tournament models of the labor market. Hierarchy is perhaps the most pervasive feature of organizations; it is this feature that, in large part, distinguishes organizational from market relationships. Section 5 analyzes formal models of hierarchical structures and explores issues of the span of control and the assignment of personnel within the organization. Personnel policy, in the sense of screening workers, is further explored in Section 6. The possible contractual relationships are constrained by the extent of the monitoring structure within the organization. Section 7 discusses the value of monitoring, the ranking of monitoring systems, the nature of optimal conditional investigation strategies and the value of communication within an agency relationship. Participative goal setting is a particularly important form of communication within an organization.
Document Details
- Document Type
- Technical Report
- Publication Date
- Mar 01, 1984
- Accession Number
- ADA149660
Entities
People
- D. Levinthal
Organizations
- Stanford University