THE THEORY OF AGENCY REDUX

The theory of agency has found applications across the social sciences as well as in management fields; there are literally thousands of papers that employ it. Unlike many popular theoretical approaches in social science, however, the theory of agency has no standard citation. Most applications to date have employed variations on the economic theory of agency, with the most cited article being Jensen and Meckling (1976). Most literature using agency has featured the assumptions, terms, logics, and domain common to approaches in economics. But agency theory did in fact have a distinct origin: it was first proposed, independently, by Mitnick (1973, 1974, 1975), beginning the institutional stream, and by Ross (1973, 1974), for the economics stream. Revisionist work on agency theory has taken for granted that the task involves extensions and repairs to the economic theory of agency. The present Guidepost essay argues that many of the criticisms do not necessarily apply to institutional agency theory. Work should return to an institutional approach that focuses on incentive relations rather than incentives; relationships of control, such as authority and responsibility, not just decisions; attention to how the inevitable imperfections of agency are managed, not just how they are corrected; the exploration of complex motivation, including terminal values; the influences of social norms on agency; and the design and functioning of systems of assurance that permit imperfect institutions to remain credible.