Michael Jensen: Agency

Michael Jensen is American economist. Explore interesting quotes on agency.
Michael Jensen: 16   quotes 0   likes

“We define agency costs as the sum of:
(1) the monitoring expenditures by the principal,
(2) the bonding expenditures by the agent,
(3) the residual loss.
Note also that agency costs arise in any situation involving cooperative effort… by two or more people even though there is no clear cut principal-agent relationship.”

Michael Jensen

Source: "Theory of the firm: Managerial behavior, agency costs and ownership structure", 1976, p. 308-9

People , Effort , Loss

“This paper integrates elements from the theory of agency, the theory of property rights and the theory of finance to develop a theory of the ownership structure of the firm. We define the concept of agency costs, show its relationship to the 'separation and control' issue, investigate the nature of the agency costs generated by the existence of debt and outside equity, demonstrate who bears the costs and why, and investigate the Pareto optimality of their existence. We also provide a new definition of the firm, and show how our analysis of the factors influencing the creation and issuance of debt and equity claims is a special case of the supply side of the completeness of markets problem.”

Michael Jensen

Source: "Theory of the firm: Managerial behavior, agency costs and ownership structure", 1976, p. 305 Abstract

Optimism , Nature , Problem

“We define an agency relationship as a contract under which one or more persons (the principal(s)) engage another person (the agent) to perform some service on their behalf which involves delegating some decision making authority to the agent. If both parties to the relationship are utility maximizers there is good reason to believe that the agent will not always act in the best interests of the principal.”

Michael Jensen

Source: "Theory of the firm: Managerial behavior, agency costs and ownership structure", 1976, p. 308

Decision , Personality