Agency Problems and the Theory of the Firm
1980/04/01 by Eugene F. Fama · 10,621 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Agency (philosophy) #Agency cost #Aside #Business #Capital call #Competition (biology) #Control (management) #Corporate Finance and Governance #Corporate governance #Corporation #Economic Theory and Institutions #Economic theories and models #Economics #Face (sociological concept) #Finance #Industrial organization #Law #Management #Market economy #Presumption #Principal–agent problem #Rest (music) #Set (abstract data type) #Shareholder #Sociology #Theory of the firm
paper · doi:10.1086/260866
published in Journal of Political Economy 88(2), 288-307 (University of Chicago Press)
openalex publication_date 1980/04/01 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/06
Abstract
This paper attempts to explain how the separation of security ownership and control, typical of large corporations, can be an efficient form of economic organization. We first set aside the presumption that a corporation has owners in any meaningful sense. The entrepreneur is also laid to rest, at least for the purposes of the large modern corporation. The two functions usually attributed to the entrepreneur--management and risk bearing--are treated as naturally separate factors within the set of contracts called a firm. The firm is disciplined by competition from other firms, which forces the evolution of devides for efficiently monitoring the performance of the entire team and of its individual members. Individual participants in the firm, and in particular its managers, face both the discipline and opportunities provided by the markets for their services, both within and outside the firm.
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