| Author: | Olsen, T. |
| Title: | Agency costs and the limits of integration |
| Journal: | RAND Journal of Economics
1996 : AUTUMN, VOL. 27:3, p. 479-501 |
| Index terms: | ECONOMICS AGENCY THEORY COSTS |
| Language: | eng |
| Abstract: | In this article the author identifies a type of integration cost that is associated with agency relations within the firm. This cost arises when the firm's principal cannot fully commit to long-term contracts with the firm's agents, and these agents have private information. In the model, integration can lead to value enhancements through the realization of complementarity gains. But this will also lead to larger rents, which is costly for the principal. The author shows that this type of cost may be sufficiently large to act as an effective limit for integrations that are otherwise profitable. |
SCIMA