Premium
Choosing Constraints as a Third Solution to Agency*
Author(s) -
Michael Steven C.,
Pearce John A.
Publication year - 2004
Publication title -
journal of management studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.398
H-Index - 184
eISSN - 1467-6486
pISSN - 0022-2380
DOI - 10.1111/j.1467-6486.2004.00471.x
Subject(s) - duration (music) , agency (philosophy) , incentive , statement (logic) , principal–agent problem , process (computing) , mission statement , business , microeconomics , operations research , economics , environmental economics , computer science , finance , mathematics , political science , management , art , corporate governance , literature , law , operating system , philosophy , epistemology
The standard solutions to agency, incentive contracting and monitoring, are degraded by the frequency and the duration of the decisions affected. Decisions of low frequency and long duration are not effectively controlled by either monitoring or incentive contracting. For decisions of low frequency and long duration, constraining the firm's choices significantly reduces agency. Applying the theory, guidelines for choosing constraints are suggested, and propositions advanced. As one application, the mission statement is considered as a vehicle for embedding constraints. The theory is also investigated by examining existing recommendations for both the content and process of mission statements.