The Problem of Unilateralism in Agency Theory: Towards a Bilateral Formulation

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 limite...

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Bibliographic Details
Published in:Business ethics quarterly 2017-04, Vol.27 (2), p.163-182
Main Authors: Pouryousefi, Sareh, Frooman, Jeff
Format: Article
Language:English
Subjects:
Agency theory
Asymmetric information
Business ethics
Critical theory
Debates
Dualism
Economic models
Ethical conduct
Expected utility
Game theory
Moral agency
Moral dilemmas
Moral hazard
Morality
Principal-agent models
Rationality
Reciprocity
Self interest
Social interaction
Strategic management
Unilateralism
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Summary: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.
ISSN:1052-150X
2153-3326
DOI:10.1017/beq.2016.77