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Principles versus principal: Reconciling norm compliance and shareholder value
Author(s) -
SinclairDesgagné Bernard
Publication year - 2020
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12390
Subject(s) - incentive , shareholder , human multitasking , microeconomics , revenue , business , principal–agent problem , economics , value (mathematics) , stakeholder , context (archaeology) , compliance (psychology) , principal (computer security) , norm (philosophy) , stewardship (theology) , viewpoints , accounting , corporate governance , finance , computer science , management , art , law , cognitive psychology , visual arts , biology , operating system , psychology , paleontology , social psychology , machine learning , political science , politics
Abstract This paper considers situations where an agent (say, a polluting firm's CEO) must allocate his nonobservable effort across two distinct tasks (say, revenue/market share enhancement and environmental stewardship), and where two principals (say, the firm's shareholders and an external stakeholder) hold diverging viewpoints on what the best allocation should be. Both characteristics of this context—multitasking and conflicting principals—are normally seen as obstacles to strengthening the agent's incentives. This paper proposes a simple arrangement, based on contingent monitoring and clawbacks, that can overcome these obstacles. Under this arrangement, the principals would end up coordinating their respective incentive schemes so that the agent considers his two tasks as complementary utility‐increasing activities. Applications to regulatory compliance, corporate social responsibility, and innovation management are briefly sketched.