Agency Costs and the Limits of Integration

In this article I identify 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...

Full description

Saved in:
Bibliographic Details
Published in:The Rand journal of economics 1996-10, Vol.27 (3), p.479-501
Main Author: Olsen, Trond E.
Format: Article
Language:English
Subjects:
Agency theory
Capital costs
Concavity
Contracts
Cost efficiency
Cost functions
Costs
Economic concentration
Economic costs
Economic models
Economic rent
Economic theory
Integration
Marginal value
Mergers
Production efficiency
Productivity
Studies
Vertical integration
Citations: Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:In this article I identify 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. I show that this type of cost may be sufficiently large to act as an effective limit for integrations that are otherwise profitable.
ISSN:0741-6261
1756-2171
DOI:10.2307/2555840