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

Published online by Cambridge University Press:  28 February 2017

Sareh Pouryousefi  and
Jeff Frooman
Sareh Pouryousefi
Affiliation:
University of Nottingham
Jeff Frooman
Affiliation:
University of New Brunswick
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Abstract:

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.

Keywords

agency theorycautionary-tale viewbilateral agencyasymmetric informationreciprocity
Type
Articles
Information
Business Ethics Quarterly , Volume 27 , Issue 2 , April 2017 , pp. 163 - 182
Copyright
Copyright © Society for Business Ethics 2017 

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