Agent theory
Samenvatting ‘Making agency theory work for supply chain
relationships: a systematic review across four disciplines’
In the supply chain, there are often two or more independent organizations with individual
goals and incomplete transparency of one another’s operations. Such relations are subject
to agency problems, namely the self-interest of the other party (typically the agent), which
creates incentive design and monitoring (i.e. governance) challenges.
We can first look at some key agency theory concepts:
Information asymmetry: the agent has private information that the principal would
like to know in order to design an optimal contract
Information rent: as long as the information remains asymmetric, efficient agents
can profit from their high efficiency, which is unknown by the principal. Met efficient
agents worden bijvoorbeeld agents bedoeld die tegen lage kosten kunnen
produceren, maar wel een hogere prijs krijgen, omdat buyers betalen voor de prijs
van inefficient agents die hogere kosten hebben. Efficient agents kunnen hier
bijvoorbeeld ook de slechte risico’s zijn in een voorbeeld van adverse selection bij
verzekeringsmaatschappijen.
Goal incongruence: the objectives of the agent and the principal are misaligned
Adverse selection: relates to unknown capabilities of the agent before signing the
contract (i.e., ex ante; vooraf)
Moral hazard: relates to hidden action after signing the contract ex post (=
achteraf). Wanneer een contractpartij risico's kan nemen zonder daarvoor de
gevolgen te moeten dragen
There is a broad range of governance mechanisms that can mitigate these agency problem
challenges:
Information transfer strategy
Information transfer strategies seek to decrease the opportunity that agency problems will
occur
Screening
The principal offers a menu of contracts from which the agents choose, ideally
revealing their type
Samenvatting ‘Making agency theory work for supply chain
relationships: a systematic review across four disciplines’
In the supply chain, there are often two or more independent organizations with individual
goals and incomplete transparency of one another’s operations. Such relations are subject
to agency problems, namely the self-interest of the other party (typically the agent), which
creates incentive design and monitoring (i.e. governance) challenges.
We can first look at some key agency theory concepts:
Information asymmetry: the agent has private information that the principal would
like to know in order to design an optimal contract
Information rent: as long as the information remains asymmetric, efficient agents
can profit from their high efficiency, which is unknown by the principal. Met efficient
agents worden bijvoorbeeld agents bedoeld die tegen lage kosten kunnen
produceren, maar wel een hogere prijs krijgen, omdat buyers betalen voor de prijs
van inefficient agents die hogere kosten hebben. Efficient agents kunnen hier
bijvoorbeeld ook de slechte risico’s zijn in een voorbeeld van adverse selection bij
verzekeringsmaatschappijen.
Goal incongruence: the objectives of the agent and the principal are misaligned
Adverse selection: relates to unknown capabilities of the agent before signing the
contract (i.e., ex ante; vooraf)
Moral hazard: relates to hidden action after signing the contract ex post (=
achteraf). Wanneer een contractpartij risico's kan nemen zonder daarvoor de
gevolgen te moeten dragen
There is a broad range of governance mechanisms that can mitigate these agency problem
challenges:
Information transfer strategy
Information transfer strategies seek to decrease the opportunity that agency problems will
occur
Screening
The principal offers a menu of contracts from which the agents choose, ideally
revealing their type
