Question

3. Eisenhardt (1989) argues that Agency theory can be used to determine the most efficient form of contract to govern an exchange relationship. Discuss the TWO (2) major Agency problems pre and post contract formation, and the TWO (2) major contract forms used to control an Agent or partner.  

Answer 1

Discussing " agency theory " is just a relation between agents & principle where agents are the principle in a particular business transaction & is expected represent the best interest of the principle with regards to self interest , this can be a principle interest problem.It is capacity of individual to act independently & to make their own free choices , example general agent , special agent

When we explain exchange relationships memebers benefits each other to incur or repay obligations.When exchange rules are followed approxcimately each relationalship considers the exchange to be fair.

The two major agency pre & post contract formation are -

When there are contracts formation the basic problems arises are the authority or party has to be in legal binding contract , such tracsactions involve legal entities such as corporation or limited liability company , the person representing the entity must have authority to enter into the contract on behalf of legal entity. The conract has to be in agreement , capacity, consideration & intention of the member in the contract formation. The other can be some thing of value must be exchanged such as cash , services or goods for some thing else in value

Two major contracts form used to control an agent or partner-

The contract forms for control of agent are period of employement ,Duties, remuneration & benefits medical insurance , expenses, company property & confidensiality , proprietory rights /inventions, standard conduct & behaviour working on behalf of the company