Auditing versus monitoring and the role of commitment

This paper studies the effect of timing and commitment of verification in a principal-agent relationship with moral hazard. To acquire additional information about the agent’s behavior, the principal possesses a costly technology that produces a noisy signal about the agent’s effort choice. The precision of this signal is affected by the principal’s verification effort. Two verification procedures are discussed: monitoring where the principal verifies the agent’s behavior simultaneously with his effort choice and auditing where the principal can condition her verification effort on the realized outcome. As it is well known, the principal prefers to audit the agent’s behavior if she can commit to her verification effort at the time of contracting. The main contribution of this paper is to highlight the importance of commitment by the principal to her verification effort. In particular, I show that, when the principal cannot commit to her verification effort ex-ante, the principal strictly prefers monitoring to auditing if the gains from choosing high effort are sufficiently high.

Simulating the Principal-Agent Relationship between Enterprise Owners and Professional Managers Using Evolutionary Game Theory and System Dynamics

The separation of ownership and management is a common operation mode in modern enterprises, which establishes the principal-agent relationship between modern enterprise owners and professional managers. Due to the information asymmetry and interest conflicts between the principal and agent, the principal-agent problem will occur and affect the efficiency of enterprise operations. Therefore, it is necessary to propose measures to improve the principal-agent relationship. This paper analyzed the principal-agent problem between enterprise owners and professional managers based on system dynamics, evolutionary game, and principal-agent theory and built a principal-agent evolutionary game model to analyze the rule of strategic choices and predict the equilibrium outcomes of different scenarios. In addition, the influence of different factors on strategic choices was simulated by the system dynamics model. The results depicted that the basic benefits and costs of cooperation are the key factors of the strategic choices, and the gap between the expected payoffs of different strategies also affects the probability of choosing those cooperative strategies. Proper supervision, standardization of the managerial labor market, and establishment of long-term incentives are crucial to cooperation between enterprise owners and professional managers.

Principal–Agent Relationship Within a Cruise Supply Chain Model for China

Changes in travelers’ booking habits and the evolution of technology have come to threaten the existence of traditional travel agents (TAs). However, the cruise industry still relies heavily on TAs as its main distribution channel. A qualitative study was conducted to investigate the networks, relationships, and power distribution between cruise companies and TAs using a triangulation method via a tourism supply chain model. Principal–agent (P-A) theory was taken as the framework to describe various parties’ relationships and roles. Several TA business models were identified, including group blocks (i.e., guaranteed and nonguaranteed) and charter cruises (i.e., retail for resale and corporate; meetings, incentives, conferences, and exhibitions). Results show an imbalance of power between parties due to unique business practices and customer preferences in Mainland China. Principals (i.e., cruise companies) were found to rely excessively on agents (i.e., TAs) to create demand, with the growing number of cruise lines leading agents to overpower principals. The alliance among TAs further affected the principal–agent relationship. A refined tourism supply chain model tailored to the cruise industry is thus proposed herein; this cruise supply chain model simplifies the complicated business network relationships between cruise companies and TAs in China.

Intellectual Property Management in Publicly Funded R&D Program and Projects: Optimizing Principal–Agent Relationship through Transdisciplinary Approach

Large-scale, publicly funded research and development (R&D) programs are implemented to accelerate state-of-the-art science, technology, and innovation applications that are expected to solve various societal problems. The present study aims to build on the body of theory on the mechanisms that promote or impede the creation of intellectual property in such programs. Using a mixed methods approach and combining quantitative network analysis and qualitative semistructured interviews, we conducted a case study to investigate best practices in terms of intellectual property creation in a Japanese governmental research and development program. The results of the network analysis showed that the core/periphery structure in the co-inventor network of patents and joint application by a university and a startup promoted intellectual property creation. The results of the interview confirmed the significance of a reciprocal mindset, which the researchers in academia could acquire through collaboration with a startup. These results suggest that a knowledge logistics system for agile intellectual property management can be established by learning to acquire tacit knowledge on social implementation. Furthermore, we focus on the principal–agent relationship between knowledge producers and knowledge consumers as a factor that impedes the creation of intellectual property. We also discuss adverse selection and moral hazards caused by information asymmetry between knowledge producers and knowledge consumers and how to deal with them.

5. Creation of agency, and the authority of the agent

This chapter focuses on the creation of the principal–agent relationship and the authority of the agency and the four ways of creating it: through an express or implied agreement between the principal and the agent; under the doctrine of apparent authority; by operation of law; and through ratification of an unauthorised agent’s acts by the principal. Agency arising out of agreement will always be consensual, but it need not be contractual. After explaining how the agency relationship is created, the chapter examines the authority of the agent such as actual authority, apparent authority, and usual authority.

Brain and Genes

During evolution, more complex structures and functions emerge as a result of division of labor and specialization. Often, this leads to a conflict between a principal who determines the nature of division of labor and an agent who implements the overall goal set by the principal. The principal–agent relationship is a useful construct to understand the relationship between the genes and the brain. This chapter covers the key assumptions of the principal–agent theory and how this can be validated in the case of gene–brain relationship. The author argues that because the brain must learn solutions to problems that genes cannot handle, learning is central to intelligence.

Stakeholder Information Flow From Horse Entrepreneurs to Customers

This study focuses on emphasizing the instrumental role of stakeholder analysis and the concept of business ecosystem. Specifically, a stakeholder relationship might provide the channel for the particular instrumental targets of a business subset. This kind of stakeholder management is based on a principal-agent relationship between industry actors. However, this example, which focuses on horse entrepreneurs and the infectious diseases of this subset of the equine industry, shows that instead of a simple principal-agent relationship, stakeholder management might yield a chain of principal-agent relationships in the form of a principal-agent/principal-agent relationship (for example, one or more of the stakeholders simultaneously takes on the role of both agent and principal). According to the analysis, horse entrepreneurs have this kind of double role in stakeholder management for the prevention of infectious diseases.