“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

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Michael Jensen 8

American economist 1939

Charles Perrow (1925–2019) American sociologist

Source: 1970s, Complex organizations, 1972, p. 220

“Agency theory is an important, yet controversial, theory. This paper reviews agency theory, its contributions to organization theory, and the extant empirical work and develops testable propositions. The conclusions are that agency theory (a) offers unique insight into information systems, outcome uncertainty, incentives, and risk and (b) is an empirically valid perspective, particularly when coupled with complementary perspectives. The principal recommendation is to incorporate an agency perspective in studies of the many problems having a cooperative structure.”

Kathleen M. Eisenhardt American economist

Source: "Agency theory: An assessment and review," 1989, p. 57 Abstract

“This study compares the agency theory of the firm with interorganizational theory in examining the factors associated with the adoption of the poison pill-a takeover defense issued by a firm's board of directors that can dramatically increase the cost that a hostile buyer would have to pay to acquire the firm-by a panel of Fortune 500 firms between July 1984 and August 1989. The pill's rapid spread is traced to a combination of ownership structure and other firm-level factors and an interlock network diffusion process. The results support a social structural perspective on the market for corporate control in which the interlock network provides a social context favoring continued managerial dominance. The findings are also more consistent with models of cohesion rather than structural equivalence as the social structural mechanism responsible for diffusion.”

Gerald F. Davis (1961) American sociologist

Source: "Agents without principles?" 1991, p. 538 ; Abstract

“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 (1939) American economist

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

“We have seen that Rawls’ theory of justice requires for its coherence a conception of community in the constitutive sense, which requires in turn a notion of agency in the cognitive sense, and we have hound that Rawls’ theory of the good can allow for neither. This calls into question the theory of justice, or the thoery of the good, or both.”

Michael J. Sandel book Liberalism and the Limits of Justice

Ch 4. Justice and the Good
Liberalism and the Limits of Justice, 1998

“Markets are institutions that exist to facilitate exchange, that is, they exist in order to reduce the cost of carrying out exchange transactions. In an economic theory which assumes that transaction costs are nonexistent. markets have no function to perform, and it seems perfectly reasonable to develop the theory of exchange by an elaborate analysis of individuals exchanging nuts for apples on the edge of the forest or some similar fanciful example. This analysis certainly shows why there is a gain from trade, but it fails to deal with the factors which determine how much trade there is or what goods are traded.”

Ronald H. Coase (1910–2013) British economist and author

1960s-1980s, "The Firm, the Market, and the Law" (1988)

Tom R. Burns (1937) American sociologist

Source: Systems theories (2006), p. 3.

“Another way of emphasizing this diversity is to argue that if one cannot forecast (predict), one does not have a theory, and that forecasting is the weakest link in the chain of the management sciences at present. Indeed, if one cannot predict one cannot measure, and if one cannot measure, then there is no "theory."
This argument will seem entirely too strong to some. We do "forecast" in terms of probability distributions, and we do make measurements in terms of "costs." Of course, the management scientist has done all sorts of things with the concept of cost which few cost accountants would condone. But in the laboratory and outside it in industrial studies, one sees the emergence of a cost concept which eventually should revolutionize the measurements in managerial policy-making.
Theory and fact are just two sides of the same coin, but the two sides of a coin are different, and this difference will continue to characterize the development of management science.”

C. West Churchman (1913–2004) American philosopher and systems scientist

quote in: Fremont A. Shull (ed.), Selected readings in management https://archive.org/stream/selectedreadings00shul#page/n13/mode/2up, , 1957. p. 8
1940s - 1950s, "Management Science — Fact or Theory?" 1956

“The description of the evolutionary trajectory of dynamical systems as irreversible, periodically chaotic, and strongly nonlinear fits certain features of the historical development of human societies. But the description of evolutionary processes, whether in nature or in history, has additional elements. These elements include such factors as the convergence of existing systems on progressively higher organizational levels, the increasingly efficient exploitation by systems of the sources of free energy in their environment, and the complexification of systems structure in states progressively further removed from thermodynamic equilibrium.
General evolution theory, based on the integration of the relevant tenets of general system theory, cybernetics, information and communication theory, chaos theory, dynamical systems theory, and nonequilibrium thermodynamics, can convey a sound understanding of the laws and dynamics that govern the evolution of complex systems in the various realms of investigation…. The basic notions of this new discipline can be developed to give an adequate account of the dynamical evolution of human societies as well. Such an account could furnish the basis of a system of knowledge better able to orient human beings and societies in their rapidly changing milieu.”

Ervin László (1932) Hungarian musician and philosopher

E. Laszlo et al. (1993) pp. xvii- xix; as cited in: Alexander Laszlo and Stanley Krippner (1992) " Systems Theories: Their Origins, Foundations, and Development http://archive.syntonyquest.org/elcTree/resourcesPDFs/SystemsTheory.pdf" In: J.S. Jordan (Ed.), Systems Theories and A Priori Aspects of Perception. Amsterdam: Elsevier Science, 1998. Ch. 3, pp. 47-74.

“There [is]… a list of five tests which any body of doctrine which aspires to the name of economic theory must be able to meet:
1. Economic theory should unify economic science. - The task of a general body of theory in any subject is to give unity to its investigations…
2. Economic theory should be relevant to the modern problem of control. - Students of economics should spend their efforts upon subjects worth investigation…
3. The proper subject-matter of economic theory is institutions. - The demand that economic theory relate to institutions is implicit in the plea for its relevancy…
4. Economic theory is concerned with matters of process. - If economic theory is to treat of institutions it must know both the kinds of things institutions are and the kinds of things they are not…
5. Economic theory must be based upon an acceptable theory of human behavior.”

Walton Hale Hamilton (1881–1958) Yale Law Professor

After all control and institutions and processes are immediate things. They can all be translated into terms of human conduct...
Source: The Institutional Approach to Economic Theory, 1919, p. 311-6

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