Monitoring Technical Agents: Theory, Evidence, and Prescriptions

Steven C. Michael
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Steven C. Michael: University of Illinois at Urbana-Champaign

Working Papers from University of Illinois at Urbana-Champaign, College of Business

Abstract: Agency relationships--where one party (the principal) delegates authority to another (the agent)--are well studied in financial settings but less so in technical settings. The asymmetry of information between the general manager and the technical manager is likely to create the possibility of misdirected effort, an overuse of the agent's human capital, whether the agent is opportunistic or not. Analyzing a dataset of information technology hardware and staff spending by larger multidivisional firms during a growth phase of US IT spending, 1989-1993, results suggest that technical managers significantly overspent on hardware, with deleterious consequences for performance. Chief executive experience significantly altered the effects of overspending. Analysis of the results suggest a solution, a model termed "staged commitment," that can be used to monitor technical agents in many areas of business.

Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:illbus:09-0103

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