External agency: Redefinition of ex ante value in agency relationships

Abstract

In this dissertation, in response to mixed empirical findings and theoretical criticism of Agency Theory, I raise a broader question: are there agency behaviors that are not considered within traditional renderings of Agency Theory? I argue that, because agents vary in their mobility, human market imperfections and their ex ante costs do not disappear with creation of a contract and cannot be assumed away. These costs are constantly redefined and must be included in the general model of agency that I develop. I define certain behaviors that are ex ante driven to be external agency behaviors.

In this dissertation I define five aspects of agent mobility that facilitate ex ante driven external agency: 1) availability of alternative contracts; 2) heterogeneity in general human capital; 3) heterogeneity in social capital; 4) heterogeneity in agent's charisma; and 5) outcome measurability. I develop a theoretical model of how agent mobility moderates the fundamental theoretical relationships in Agency Theory and develop a set of hypotheses to test my arguments.

The results of this dissertation provide support for the conceptualization of agent's mobility as a previously unexplored alignment mechanism in the agency relationship that lowers the downside risk of the agent and can enhance the alignment of risk preferences and goals between the agent and the principal. I find support for the existence of ex ante agency costs that are associated with the expansion of market for contracts via diversification. The results also provide evidence to the costs of agent's mobility in terms of higher increases in total compensation for more mobile agents.