Agency, Theory of

Some Characteristic Behaviors and Problems of Agency

Agents can help solve the principal's problems in action in several ways. Agents are employed when the principal has a fundamental or qualitative inability to perform the needed action by himself or herself. For example, the principal lacks the expertise to cure himself or herself of illness or the balance or agility to clean leaves out of the gutter of his or her house. A second circumstance can arise when the principal is capable of doing the agency task but finds it rational to have another perform it instead. Thus, editors use foreign correspondents to get the news and senior managers delegate work to junior managers. In general, it may be more efficient for the principal to have someone else do the work, or there may be technical or structural reasons that prevent the principal from performing it. A third reason is rooted in the ability of agents to assist in resolving collective action dilemmas, providing a coordinating or coercive service that permits group action to occur. For example, the United Way acts as an agent for corporations in resolving problems of ensuring and distributing charitable contributions from many corporations to many charities. Finally, agents can serve symbolic purposes, as when presidents establish national study commissions with the purpose not of solving a pressing national issue but of defusing criticism from third parties for lack of action.

A central logic in the analysis of agency relationships focuses on the factors that interfere with perfect service and/or perfect control. Perfect agency, featuring the exact realization of the principal's goals in the relationship, rarely obtains. A host of factors can intervene to prevent perfect agency. They include, for example, biases or errors in perception, differences or conflicts in goals or values, differences in risk preference among the actors, differences in information conditions, incompetence or skill deficits, communication problems, lack of effort, emergent factors generated by the existence of systems of agent action, challenges from other institutions, and so on. In general, principals and agents expend resources on the costs of specifying what the agent is supposed to do and in monitoring and policing what actually occurs, [Page 43]or is perceived to have occurred. These costs have been termed specification costs and policing costs.

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