DEFINITION AND ASSUMPTIONS

[1] MARQUETTE, H., AND C. PEIFFER (2015)

[2] WALTON, G., AND A. JONES (2017)
[5] WATERMAN, R. AND MEIER, K. (1998)
[6] HULSMAN, J. G. (2006)

A principal-agent issue is defined by two assumptions:

• that the principal and agent have opposing interests,

• and that the agent has more knowledge than the principal (information asymmetry).
Because the principal cannot precisely oversee the agent's conduct due to asymmetric
knowledge, the agent has considerable freedom to pursue their interests.

[4] T. PETERSEN (1993)

A. Agency Variations- It indicates something about the agent's ability to fulfill the activities
contracted for by the principal whether the agent is cautious vs careless, hardworking versus
lazy, dependable versus unreliable, trustworthy versus untrustworthy, and able versus
incapable.
B. Agents’ Actions Have Some Impact- In an employment relationship, for example, exerting
effort is generally expensive to the worker, either physically or emotionally.
C. Random Elements- The activity might be the sales effort, and it could demonstrate the
amount to which one has what it takes to be a salesman. However, given the kind and effort,
success will also be determined by circumstances over which the agent has no control, such
as the number of clients that visit the shop, which may be affected by the weather, special
deals in other stores, and so on.
D. The Results- The result may be the number of shoes manufactured by a manufacturing
worker, the number of sales made by a department store salesman, the success of a medical
treatment, and so on. The result may also have a number of features, such as quantity and
quality, or the amount and quality of numerous significant components.
E. Asymmetrical Information-

These five elements characterize the context in which the relationship between the principal and
the agent occurs. Except for the fifth criterion concerning asymmetrical information, they do not
have to be present at the same time. This description may be used with any human nature
assumptions. I discuss the specific behavioral assumptions adopted in agency theory below.
However, I emphasize that the five characteristics listed above provide the most comprehensive
explanation of the principal-agent relationship.

PEOPLE INVOLVED IN THE THEORY

[2] WALTON, G., AND A. JONES (2017)

[5] WATERMAN, R. AND MEIER, K. (1998)
• The principal-agent theory of corruption is centered on two essential actors:
A. Principal referred to an individual that provides or offer a position to someone
which will be work for him in return of incentives.
B. Agent refers to an individual that focus on rendering his services to the principals
for its profit maximization.
The contractual agreement plays an important role in the formulation of an
institutional or regulatory principal agent model where in it says that the typology
of the relationship between principal and agent are generated from the level of
consent that they given regarding the agent’s action.

WEAKNESSES OF THE THEORY

[3] EISENHARDT, K. (1989)

Agency theory has been used by scholars in accounting, economics, finance, marketing, political
science, organizational behavior, and sociology

Yet, it is still surrounded by controversy.

• Jensen, 1983- that "the foundation for a powerful theory of organizations is being put into
place".
• Perrow, 1986- Its detractors call it trivial, dehumanizing, and even “dangerous”.
• Perrow, 1986- claimed that agency theory addresses no clear problems.
• Hirsch and Friedman, 1986- called it excessively narrow, focusing only on the stock price. For
economists, long accustomed to treating the organization as a "black box" in the theory of the
firm, agency theory may be revolutionary. Yet, for organizational scholars, the worth of
agency theory is not so obvious.

RECOMMENDATIONS ON THE THEORY

[3] EISENHARDT, K. (1989)

F. Focus On Information Systems, Outcome Uncertainty, And Risk

According to McGrath, Martin, and Kukla (1981), research is a process of information

accumulation. The following stages for agency theory research are obvious when using this
accrual criterion: Researchers should concentrate on information systems, uncertainty in
outcomes, and risk. These agency factors contribute the most distinctively to organizational
studies, although they have gotten little empirical attention. To develop agency theory and give
new ideas in the study of common themes such as impression management, innovation, vertical
integration, remuneration, strategic partnerships, and board interactions, researchers must stress
these factors.

G. Key on Theory-Relevant Contexts

 The organizational theory usually is explored in settings in which the theory appears to
have the greatest relevance. For example, institutional and resource dependence theories were
developed primarily in large, public bureaucracies in which efficiency may not have been a
pressing concern. The recommendation here is to take the same approach with agency theory:
Key on theory-relevant contexts. Agency theory is most relevant in situations in which
contracting problems are difficult. These include situations in which there is (a) substantial goal
conflict between principals and agents, such that agent opportunism is likely (e.g., owners and
managers, managers and professionals, suppliers and buyers); (b) sufficient outcome uncertainty
to trigger the risk implications of the theory (e.g., new product innovation, young and small
firms, recently deregulated industries); and (c) unprogrammed or team-oriented jobs in which
evaluation of behaviors is difficult. By emphasizing these contexts, researchers can use agency
theory where it can provide the most leverage and where it can be most rigorously tested. Topics
such as innovation and settings such as technology-based firms are particularly attractive because
they combine goal conflict between professionals and managers, risk, and jobs in which
performance evaluation is difficult.

H. Expand to Richer Context

Perrow (1986) and others have criticized agency theory for being excessively narrow and having
few testable implications. Although these criticisms may be extreme, they do suggest that
research should be undertaken in new areas. Thus, the recommendation is to expand to a richer
and more complex range of contexts.

Two areas are particularly appropriate;

(I) One is to apply the agency structure to organizational behavior topics that relate to
information asymmetry (or deception) in cooperative situations; and

(J) the second area is expansion beyond the pure forms of behavior and outcome contracts as
described in this article to a broader range of contract alternatives.

E. Use Multiple Theories

A recent article by Hirsch et al. (1987) eloquently compared economics with sociology.

They argued that economics is dominated by:

(K) single paradigm,
(L) price theory,
(M)and a single view of human nature, self-interest.

In contrast, the authors maintained that a strength of organizational research is it is a polyglot of

theories that yield a more realistic view of organizations.

Consistent with the Hirsch et al. Arguments, the recommendation here is to use agency theory
with complementary theories. Agency theory presents a partial view of the world that, although it
is valid, also ignores a good bit of the complexity of organizations. Additional perspectives can
help to capture the greater complexity.
This point is demonstrated by many of the empirical studies reviewed above. For example, the
Singh and Harianto (in press) and Kosnik (1987) studies support agency theory hypotheses, but
they also use the complementary perspectives of hegemony and managerialism. These
perspectives emphasize the power and political aspects of golden parachutes and greenmail,
respectively. Similarly, the studies by Eisenhardt (1988) and Conlon and parks (1988) combine
institutional and agency theories. The institutional emphasis on tradition complements the
efficiency of agency theory, and the result is a better understanding of compensation. Other
examples include Anderson (1985), who coupled agency and transaction cost, and Eccles (1985),
who combined agency with equity theory.

N. Consider Other Things Than Economics

The final recommendation is that organizational researchers should look beyond the economics
literature. The advantages of economics are the careful development of assumptions and logical
propositions (Hirsch et al., 1987). How- ever, much of this careful theoretical development has
already been accomplished for agency theory. For organizational researchers, the pay-off now is
in empirical research, where organizational researchers have a comparative advantage (Hirsch et
al., 1987). To rely too heavily on economics with its restrictive assumptions such as efficient
markets and its single-perspective style is to risk doing second-rate economics without
contributing first-rate organizational research. Therefore, although it is appropriate to monitor
developments in economics, it is more useful to treat economics as an adjunct to more
mainstream empirical work by organizational scholars.

CONTEXTUALIZATION OF THE THEORY IN THE PHILIPPINES AND

INTERNATIONAL CONTEXT

Cases where Information asymmetry and goal conflict were combined:

Case 1: Goal Conflict: Principal and agent lack of information:  In this case information is not
important to an analysis of the issue at hand because it is some likely cases are policies on school
prayer, abortion, and perhaps school desegregation. Knowledge is discounted and not part of the
debate. It devolves the notion as in the case of abortion, to such issues as “it's our right" vs.
"you're killing babies.

A law that prohibited the abortion

The mother/woman as an agent and principal actor

Case 2: Goal Conflict:  Agents have an information advantage over the principal: This is the
classic case where the principal-agent theory manifest. For example, the relationship between
President Reagan and most regulatory agencies followed this pattern; in fact, this pattern may be
generalizable to many relationships between regulatory agencies and presidents.

[corruption in the Philippines]

[provide a definition of corruption by a scholar]

[give a briefer of corruption in the Philippines]

[principal- citizens] [agent- politicians] [example: Bongbong Marcos and Supporters]

Case 3: Goal Conflict: Both principals and agents have information: In this case monopoly of
power and information lie at the hand of everyone. In the multiple principal cases, the politics in
situations like this will resemble advocacy coalitions with bureaucrats and politicians aligned
together on either side of the issue (Sabatier and Jenkins-Smith 1993).

Case 4:  Goal Conflict: principal have information and agents don’t have: In this situation
politicians will dominate any relationship with bureaucrats since politicians have both legitimacy
and technical knowledge.

CONCLUSION

Principal-Agent Theory

It is an agreement or contract or two or more people where the principal(s) hired an individual to
perform services on their behalf which involves delegating some decision-making authority to
the agent (Jensen and Meckling, 1976).

The information asymmetry serves as the capability or power for both actors. In other words, it is
the in-equal access to a piece of relevant information specific to a happening in an office. While
bounded rationality is the limitation of an individual capacity to do something or to address a
certain situation or circumstances. On the other hand, **, opportunism** is the stage of
opportunity when the principal takes the advancement of action and where the agency lacks
happens what are the factors that can lead to such?

The relationship between them can be characterized by information asymmetry. Hence the
consequences where agents’ information is greater than the principal are:

1. The principals’ consequences are the uncertainty of how will agent act, and also:
2. Can’t ensure if the agent is acting at his best.

This consequence is known as Agency Cost. It must be noted that both actors are self-interested
therefore no one of them can’t ensure that will work at their best maximization because at the
end of the day they would look for an opportunity where they can explore independence and
enjoy their personal preferences and interest.