AGENCY PROBLEMS AND
THE THEORY OF THE FIRM
EUGENE F. FAMA (1980)
, Main Questions of the Article
The main question of this article is whether the separation of ownership and
control which is typical for large corporations is a viable and efficient form of
economic organization.
Two basic questions are adressed:
1) Why traditional concepts of ownership and entrepreneurship are unsuitable
for analyzing corporate structures.
2) How market mechanisms like labour and capital markets can discipline
managers and alter their behavior to reach corporate efficiency.
, Motivation of the Author
The motivation stems from the previous studies:
Classic theories like those of Adam Smith ("The Wealth of Nations" - 1776), Berle
and Means ("The Modern Corporation and Private Property" - 1932) explored the
problems of aligning the interests of owners and managers, but did not investigate the
broad consequences of the market mechanisms in general.
Fama follows up on the "nexus of contracts" concept that was developed by Alchian
and Demsetz ("Production, Information Costs, and Economic Organization" - 1972),
Jensen and Meckling ("Theory of the Firm: Managerial Behavior, Agency Costs and
Ownership Structure» - 1976) and he is intended to contribute to the extension of this
view by focusing on how market competition affects managerial behavior without the
centralized ownership control.
THE THEORY OF THE FIRM
EUGENE F. FAMA (1980)
, Main Questions of the Article
The main question of this article is whether the separation of ownership and
control which is typical for large corporations is a viable and efficient form of
economic organization.
Two basic questions are adressed:
1) Why traditional concepts of ownership and entrepreneurship are unsuitable
for analyzing corporate structures.
2) How market mechanisms like labour and capital markets can discipline
managers and alter their behavior to reach corporate efficiency.
, Motivation of the Author
The motivation stems from the previous studies:
Classic theories like those of Adam Smith ("The Wealth of Nations" - 1776), Berle
and Means ("The Modern Corporation and Private Property" - 1932) explored the
problems of aligning the interests of owners and managers, but did not investigate the
broad consequences of the market mechanisms in general.
Fama follows up on the "nexus of contracts" concept that was developed by Alchian
and Demsetz ("Production, Information Costs, and Economic Organization" - 1972),
Jensen and Meckling ("Theory of the Firm: Managerial Behavior, Agency Costs and
Ownership Structure» - 1976) and he is intended to contribute to the extension of this
view by focusing on how market competition affects managerial behavior without the
centralized ownership control.
