Michael Jensen: Contract

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

“It is traditional in the theory of the firm to define the production opportunity set available to the firm in terms of its boundary -- the maximum attainable set of output quantities for various input quantities, given the state of technology and knowledge. This boundary is the production function of the firm. One of our purposes here is to point out the dependence of such production functions on the structure of property rights and contracting rights within which the firm exists. We redefine the production function in order to recognize the dependence of output on the structure of property and contracting rights. That expanded framework is then used to discuss a concrete set of problems surrounding the role of labor in the firm ranging from the 'labor-managed firm' system (in which tradable capital value residual claims [common stock] are legally prohibited), and the codetermination and industrial democracy movements (in which management participation by labor is required by law), to cooperatives and professional partnerships (i. e., quasi-labor-managed firms which arise out of the voluntary contracting process), and the capitalist corporation.”

Michael Jensen

Michael C. Jensen and William H. Meckling. "Rights and production functions: An application to labor-managed firms and codetermination." Journal of business (1979): 469-506.

Law , Democracy , Knowledge , Problem

“Most organisations firms are simply legal fictions which serve as a nexus for a set of contracting relationships among individuals.”

Michael Jensen

Source: "Theory of the firm: Managerial behavior, agency costs and ownership structure", 1976, p. 310

“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