Agency Problems and the Fate of Capitalism

Randall Morck and Bernard Yeung

No 16490, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Economics has firms maximizing value and people maximizing utility, but firms are run by people. Agency theory concerns the mitigation of this internal contradiction in capitalism. Firms need charters, regulations and laws to restrain those entrusted with their governance, just as economies need constitutions and independent judiciaries to restrain those entrusted with government. Agency problems distort capital allocation if corporate insiders are inefficiently selected or incentivized, and this hampers economic growth absent a legal system with appropriate constraints. However, political economy problems and agency problems in corporations may reinforce each other, compromising the quality of both corporate governance and government.

JEL-codes: B53 G28 G34 N20 P1 P12 (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-cta and nep-mic
Note: CF
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Citations: View citations in EconPapers (1)

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