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The Economic Theory of Agency: The Principal's Problem

Stephen A. Ross · American Economic Review 63(2), 134–139 · 1973

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Type: Article
Author: Stephen A. Ross
Accessed: 2026-09-01

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EstablishedJensen and Meckling formalised agency costs as the sum of the principal's monitoring expenditures, the agent's bonding expenditures and the residual loss from divergence between the agent's decisions and those that would maximise the principal's welfare.