Can Private Learn from Public Governance?

Bruno Frey and Matthias Benz

Economic Journal, 2005, vol. 115, issue 507, F377-F396

Abstract: Corporate governance is importantly based on agency theory and relies on extrinsic incentives to align the interests of managers, employees and shareholders. This article argues that in view of recent corporate scandals, private governance can learn from public governance: (1) Goal-oriented intrinsic motivation of agents should be supported by fixed incomes and an extensive selection process of employees; (2) Extrinsic, but non-monetary incentives (e.g. conferring orders and titles) can be used; (3) The power of actors should be restricted by a clear division of power, appropriate rules of succession and institutionalised competition for positions in firms. Copyright 2005 Royal Economic Society.

Date: 2005
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