An agency cost is an economic concept concerning the fee to a " principal " an organization, person or group of personswhen the principal chooses or hires an " agent " to act on its behalf. Because the two parties have different interests and options agent has more informationthe principal cannot directly ensure that its agent is always acting in its the principal's best interests. Common examples of this cost include that borne by shareholders the principalwhen corporate management the agent buys options companies to expand its power, problem spends money on wasteful pet projects, instead of maximizing the value of the corporation's worth; or by the voters of a politician's district the principal when the politician the agent passes legislation problem to large contributors to their campaign rather than the voters. The information asymmetry that exists between shareholders and the Chief Executive Officer is agency considered to be a classic example of a principal—agent problem. The agent the manager is working on behalf of the principal the shareholders problem, who does not observe the actions, or many of the actions, or is not aware of the repercussions of many of the options of the agent. Most importantly, even if there was no asymmetric information, the design of the manager's contract would be crucial in order to maintain the relationship between their actions and the interests of shareholders. Information asymmetry contributes to moral hazard and adverse selection problems. Agency costs mainly arise due to contracting costs and the divergence of problem, separation of ownership and control and the different objectives rather than shareholder maximization the managers. Professor Michael Jensen of the Harvard Business School and the late Professor William Meckling of the Simon School of BusinessUniversity of Rochester wrote an influential paper in titled "Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure". There are various actors in the field and various objectives that can incur costly correctional behaviour. The various actors are mentioned and their objectives are given below. The classic case of corporate agency cost is the professional manager—specifically the CEO—with only a small stake in ownership, having interests differing from those of firm's owners. Venturing onto fraud, management may even manipulate financial figures to optimize bonuses and stock-price-related options. In jurisdictions outside the US and UK, a distinct form of agency costs arises from the agency of dominant shareholders within public corporations Rojas, Bondholders typically value a risk-averse strategy since they do not benefit from higher profits. Stockholders on the other hand have an interest in taking on more risk. If a risky project succeeds shareholders will get all of the stock themselves, whereas if the projects fail the risk maybe shared with the bondholder although the bondholder has a higher priority for repayment in case of issuer bankruptcy than a shareholder [10]. Because bondholders know this, they often have costly and large ex-ante contracts in place prohibiting the management from taking on very risky projects that might arise, or they will simply raise the interest rate demanded, increasing the cost of capital stock the company. In the literature, the board of directors is typically viewed as comprising both the management and the shareholders and in some cases, the management could also be part of the shareholders. Labour is sometimes aligned with stockholders and sometimes with management. They too share the same risk-averse strategy, since they cannot diversify their labour whereas the stockholders can diversify their stake in the equity. Risk averse agency reduce the risk of bankruptcy and in turn reduce the chances of job-loss. On the other hand, if the CEO is clearly underperforming then the company is in threat of a hostile takeover which is sometimes associated with job-loss. They are stock likely to give the CEO considerable leeway in taking risk averse projects, but if the manager is clearly underperforming, they will likely signal that to the stockholders. Other stakeholders such as the government, suppliers and customers all have their specific interests to look after and that might incur additional costs. Agency costs in the government may include the likes of government wasting taxpayers money to suit their own interest, which may conflict with the general tax-paying public who may want it used elsewhere on things such as health care and education. The literature however mainly focuses on the above categories of agency costs. While complete contract theory is useful for explaining the terms of agricultural contracts, such as the sharing percentages in tenancy contracts Steven N. Cheung, [11] agency costs are typically agency to explain their forms. For example, piece rates are preferred for labor tasks where quality is readily observable, e. Where effort quality is difficult to observe, e. Allen and Lueck [12] have found that farm organization is strongly influenced by diversity in the form of moral stock such that crop and household characteristics explain the nature of the farm, stock the lack of risk aversion. Roumasset [13] finds that warranted intensification e. Where warranted specialization is low, peasant farmers relying on household labor predominate. In high value-per-hectare agriculture, however, there is extensive horizontal specialization by task and vertical specialization between owner, supervisory options and workers. These agency theories of farm organization and agricultural allow for multiple shirking possibilities, in contrast to the principal-agency version of sharecropping and agricultural contracts Stiglitz, [14][15] [16] which trades-off labor shirking vs. From Wikipedia, the free encyclopedia. Journal of Financial Economics. Creating Shareholder Value Through Mergers Evidence from a Structural Estimation? Archived August 9,at the Wayback Machine. University of British Columbia Law Review. An Investor's Guide Tradeking. The Nature of the Farm: Contracts, Risk, and Organization in Agriculture. The Review of Economic Studies. The Review of Economic Studies Ltd. Princeton, Woodrow Wilson School - Discussion Paper Retrieved from " https: Asymmetric information Law and economics. Webarchive template wayback links. Navigation menu Personal tools Not logged in Talk Contributions Create account Log in. Views Read Edit View history. 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I would like to probe specific problem areas such as the application of quantitative analysis to understanding various issues in global finance and improving decision-making and effect of increase in global communications on international finance decisions.
His works include Russia 2025: Scenarios for the Russian Future (2013), and The State of Russia: What Comes Next (co-edited with Maria Lipman, 2015).
It is not your opinion and should not be general- it should be very specific.
I would like to probe specific problem areas such as the application of quantitative analysis to understanding various issues in global finance and improving decision-making and effect of increase in global communications on international finance decisions.