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Domain knowledge, ability, and the principal's authority relations
Author(s) -
Levy Nadav
Publication year - 2014
Publication title -
the rand journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.687
H-Index - 108
eISSN - 1756-2171
pISSN - 0741-6261
DOI - 10.1111/1756-2171.12055
Subject(s) - principal (computer security) , affect (linguistics) , domain (mathematical analysis) , relation (database) , business , principal–agent problem , principal component analysis , knowledge management , psychology , computer science , corporate governance , artificial intelligence , data mining , mathematics , computer security , finance , communication , mathematical analysis
I consider how different managerial traits affect the authority relation between a principal and his agent. An increase in the principal's domain knowledge—which enhances his capability to verify the agent's recommendations—leads to an increase in the proportion of the agent's recommendations that are approved, an increase in the agent's initiative, and is unambiguously beneficial to the principal and to the agent. In contrast, an increase in the principal's general ability to explore additional alternatives on his own leads to the principal making a larger proportion of the decisions. This discourages the agent's initiative and can adversely affect the principal.