The Problem of Unilateralism in Agency Theory: Towards a Bilateral Formulation. Issue 2 (28th February 2017)

• Record Type: Journal Article
• Authors: Pouryousefi, Sareh; Frooman, Jeff
• Is Part Of: Business ethics quarterly. Volume 27:Issue 2(2017)
• Page Start: 163
• Page End: 182
• Publication Date: 2017-02-28
• Subjects: agency theory, -- cautionary-tale view, -- bilateral agency, -- asymmetric information, -- reciprocity; Business ethics -- Periodicals; 174.405
• DOI: 10.1017/beq.2016.77
• Languages: English
• ISSNs: 1052-150X

Abstract

ABSTRACT: Some business ethicists view agency theory as a cautionary tale—a proof that it is impossible to carry out successful economic interactions in the absence of ethical behaviour. The cautionary-tale view presents a nuanced normative characterisation of agency, but its unilateral focus betrays a limited understanding of the structure of social interaction. This article moves beyond unilateralism by presenting a descriptive and normative argument for a bilateral cautionary-tale view. Specifically, we discuss hat swaps and role dualism in asymmetric-information principal-agent relationships and argue that the norm of reciprocity can function as a moral solution to agency risks in adverse-selection and moral-hazard problems. Our bilateral cautionary-tale formulation extends the normative boundaries of agency theory, while leaving the fundamental economic assumptions of agency theory intact.