山羊皮2.3 Fama,E.Agency problems and the theory of the firm

2021年1月13日发(作者：米应祥)
Agency Problems and the Theory of the Firm
Author(s): Eugene F. Fama
Source:
The Journal of Political Economy,
Vol. 88, No. 2 (Apr., 1980), pp. 288-307
Published by: The University of Chicago Press
Stable URL: /stable/1837292
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Agency Problems and the Theory of the Firm
Eugene F. Fama
of Chicago
University
This paper attempts to explain how the separation of security own-
ership and control, typical of large corporations, can be
an efficient
form of economic organization. We first set aside the presumption
that a corporation has owners in any meaningful sense. The entre-
preneur is also laid to rest, at least for the purposes of the large
modern corporation. The two functions usually attributed to the
entrepreneur-management and risk bearing-are treated as natu-
rally separate factors within the set of contracts called a firm. The firm
is disciplined by competition from other firms, which forces the
evolution of devices for efficiently monitoring the performance of
the entire team and of its individual members. Individual partici-
pants in the firm, and in particular its managers, face both the
discipline and opportunities provided by the markets for their ser-
vices, both within and outside the firm.
Economists have long been concerned with the incentive problems
that arise when decision
making in a firm is the province of managers
who are not the firm's security
holders.' One outcome has been the
development of and theories of the firm
which
reject the classical model of an entrepreneur, or owner-
This research is supported by the National Science Foundation. Roger Kormendi has
contributed much, and the comments of A. Alchian, S. Bhattacharya, G. Becker, F.
Black, M. Blume, M. Bradley, D. Breeden, N. Gonedes, B. Horwitz, G. Jarrell, E. H.
Kim, J. Long, H. Manne, W. Meckling, M. H. Miller, M. Scholes, C. Smith, G. J. Stigler,
R. Watts, T. Whisler, and J. Zimmerman are gratefully acknowledged. Presentations at
the finance, labor economics, and industrial organization workshops of the University
of Chicago and the workshop of the Managerial Economics Research Center of the
University of Rochester have been helpful. The paper is largely an outgrowth of
discuionscr
with
Michael
C(
lnsun
'Jensen and Meckling (1976) quote from Adam Smith (1776). The modern literature
on the problem dates back at least to Berle and Means (1932).
[Journal
{f
Political
Economy, 1980,
vol. 88, no.
21
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1980
by The
University
of
Chicago. 0022-380880/28802-0005$$01.65
288
THEORY
OF THE
FIRM
289
manager, who single-mindedly operates the firm to maximize
profits,
in favor of theories that focus more on the motivations of a
manager
who controls but does not own and who has little resemblance to the
classical
are Baumol
(1959), Simon (1959),
Cyert and March (1963), and Williamson
(1964).
More recently the literature has moved toward theories that
reject
the classical model of the firm but assume classical forms of economic
behavior on the part of agents within the firm. The firm is
viewed as a
set of contracts among factors of production, with each factor moti-
vated by its self-interest. Because of its emphasis on the
importance of
rights in the organization established by contracts, this
literature is
characterized under the rubric
setz (1972) and Jensen and Meckling (1976) are the best
examples.
The antecedents of their work are in Coase (1937,
1960).
The striking insight of Alchian and Demsetz (1972)
and Jensen and
Meckling (1976) is in viewing the firm as a set of contracts
among
factors of production. In
effect, the firm is viewed as a team whose
members act from self-interest but realize that their destinies
depend
to some extent on the survival of the team in its
competition with
other teams. This
insight, however, is not carried far enough.
In
the
classical theory, the agent who personifies
the firm is the entre-
preneur who is taken to be both manager and residual risk bearer.
Although
his title sometimes changes-for
example,
Alchian and
Demsetz call him
entrepreneur continues to play
a central role in the firm of
the property-rights literature. As a
consequence, this literature fails to explain the large modern corpo-
ration in which control of the firm is in the hands of
managers who
are more or less separate from the firm's
security holders.
The main thesis of this paper is that separation of
security owner-
ship and control can be explained as an efficient form of
economic
organization within the
aside the typical presumption that
a corporation has owners
in any
meaningful sense. The attractive concept of the
entrepreneur is also
laid to rest, at least for the purposes of the large modern
corporation.
Instead, the two functions usually attributed to the
entrepreneur,
management and risk bearing, are treated as naturally
separate fac-
tors within the set of contracts called a firm. The firm is
disciplined by
competition from other firms, which forces the evolution of devices
for
efficiently monitoring the performance of the entire team and of
its individual members. In addition,
individual participants in the
firm, and in particular its managers, face both the
discipline and
opportunities provided by the markets for their
services, both within
and outside of the firm.
290
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The Irrelevance of the Concept of Ownership of the Firm
To set a framework for the analysis, let us first describe roles for
management and risk bearing in the set of contracts called a firm.
Management is a type of labor but with a special role-coordinating
the activities of inputs and carrying out the contracts agreed among
inputs, all of which can be characterized as
explain the role of the risk bearers, assume for the moment that the
firm rents all other factors of production and that rental contracts are
negotiated at the beginning of each production period with payoffs at
the end of the period. The risk bearers then contract to accept the
uncertain and possibly negative difference
between total revenues
and costs at the end of each production period.
When other factors of production
are paid at the end of each
period, it is not necessary for the risk bearers to invest anything in the
firm at the beginning of the period. Most commonly, however, the
risk bearers guarantee performance of their contracts by putting up
wealth ex ante, with this front money used to purchase capital and
perhaps also the technology that the firm uses in its production
activities. In this way the risk bearing function is combined with
ownership of capital and technology. We also commonly observe that
the joint functions of risk bearing and ownership of capital are re-
packaged and sold in different proportions to different groups of
investors. For example, when front money is raised by issuing both
bonds and common stock, the bonds involve a combination of risk
bearing and ownership of capital with a low amount of risk bearing
relative to the combination of risk bearing and ownership of capital
inherent in the common stock. Unless the bonds are risk free, the risk
bearing function is in part borne by the bondholders, and ownership
of capital is shared by bondholders and stockholders.
However, ownership of capital should not be confused with owner-
ship of the firm. Each factor
in a firm is owned
by somebody. The
firm
is just the set of contracts covering the way inputs are joined to create
outputs and the way receipts from outputs are shared among inputs.
In this
irrelevant concept. Dispelling
the tenacious notion that a firm is
owned by its security holders is important because it is a first step
toward understanding that control over a firm's decisions is not neces-
sarily the province of security holders. The second step is setting aside
the equally tenacious role in the firm usually attributed to the entre-
preneur.
Management and Risk Bearing:
A Closer Look
The entrepreneur (manager- risk
bearer) is central
in both the
Jensen-Meckling
and Alchian-Demsetz
analyses
of the firm. For
THEORY OF THE
FIRM
291
example, Alchian-Demsetz state:
identified here as a contractual structure with: 1) joint input produc-
tion; 2) several input owners; 3) one party who is common to all the
contracts of the joint inputs; 4) who has the right to renegotiate any
input's contract independently
of contracts with other input owners;
5) who holds the residual claim; and 6) who has the right to sell his
central contractual residual status. The central agent is called the
firm's owner and the employer
To understand the modern corporation, it is better to separate the
manager, the agents of points 3 and 4 of the Alchian-Demsetz defini-
tion of the firm, from the risk bearer described in points 5 and 6. The
rationale for separating these functions is not just that the end result
is more descriptive of the corporation, a point recognized in both the
Alchian-Demsetz and Jensen- Meckling
papers. The major loss
in
re-
taining the concept of the entrepreneur is that one is prevented from
developing a perspective on management and risk bearing as separate
factors of production, each faced with a market for its services that
provides alternative opportunities and, in the case of management,
motivation toward performance.
Thus,
any given
set of
contracts,
a
particular
firm,
is in
competition
with other firms, which are likewise teams of cooperating factors of
production. If there is a part of the team that has a special interest in
its viability, it is not obviously the risk bearers. It is true that if the
team does not prove viable factors like labor and management are
protected by markets in which rights to their future services can be
sold or rented to other teams. The risk bearers, as residual claimants,
also seem to suffer the most direct consequences from the failings of
the team. However, the risk bearers in the modern corporation also
have markets for their services-capital
markets- which allow them
to shift among teams with relatively low transaction costs and to hedge
against the failings of any given team by diversifying their holdings
across teams.
Indeed, portfolio theory tells us that the optimal portfolio for any
investor is likely to be diversified across the securities of many firms.2
Since he holds the securities of many firms precisely to avoid having
his wealth depend too much on any one firm, an individual security
holder generally has no special interest in personally overseeing the
detailed activities of any firm. In short, efficient allocation of risk
bearing seems to imply a large degree of separation of security owner-
ship from control of a firm.
On the other
hand, the managers of a
firm rent a substantial
lump
of wealth-their human
capital-to
the
firm,
and the rental rates for
Detailed discussions of portfolio models can be
found in Fama and Miller (1972,
chaps.
6 aind 7),
Jensen
(1972), and Fama (1976, chaps. 7 and 8).
2
292 JOURNAL OF POLITICAL ECONOMY
their human capital signaled by the managerial labor market are likely
to depend on the success or failure of the
firm. The function of
management is to oversee the contracts among factors and to ensure
the viability of the firm. For the purposes of the managerial labor
market, the previous associations of a manager with success and
failure are information about his talents. The manager of a firm, like
the coach of any team, may not suffer any immediate gain or loss in
current wages from the current performance
of his team, but the
success or failure of the team impacts his future wages, and this gives
the manager a stake in the success of the team.
The firm's security holders provide important but indirect assis-
tance to the managerial labor market in its task of valuing the
firm's
management.
A security holder wants to purchase securities with
confidence that the prices paid reflect the risks he is taking and that
the securities will be priced in the future to allow him to reap the
rewards (or punishments) of his risk bearing. Thus, although an indi-
vidual security holder may not have a strong interest in directly
overseeing the management of a particular firm, he has a strong
interest in the existence of a capital market which efficiently prices the
firm's securities. The signals provided by an efficient capital market
about the values of a firm's securities are likely to be important for the
managerial labor market's revaluations of the firm's management.
We come now to the central question. To what extent can the
signals provided by the managerial labor market and the capital
market, perhaps along with other market-induced mechanisms, disci-
pline managers? We first
discuss,
still in general terms, the types of
discipline imposed by managerial labor markets, both within and
outside of the firm. We then analyze specific conditions under which
this discipline is sufficient to resolve potential incentive problems that
might be associated with the separation of security ownership and
control.
The Viability of Separation of Security Ownership
and Control of the Firm: General Comments
The outside managerial labor market exerts many direct pressures on
the firm to sort and compensate managers according to performance.
One form of
pressure comes from the fact that an ongoing firm is
always
in
the market for new managers. Potential new managers are
concerned with the mechanics by which their performance will be
judged, and they seek information about the responsiveness of the
system
in
rewarding performance. Moreover, given a competitive
managerial labor market, when the firm's reward system is not re-
sponsive to performance the firm loses managers, and the best are the
first to leave.
THEORY
OF THE
FIRM
293
There is also much internal monitoring of managers by managers
themselves. Part of the talent of a manager is his ability to elicit and
measure the productivity of lower managers, so there is a natural
process of monitoring from higher to lower levels of management.
Less well appreciated, however, is the monitoring that takes place
from bottom to top. Lower managers perceive that they can gain by
stepping
over shirking or less competent
managers above them.
Moreover, in the team or nexus of contracts view of the firm, each
manager is concerned with the performance of managers above and
below him since his marginal product is likely to be a positive function
of theirs. Finally, although higher managers are affected more than
lower managers, all managers realize that the managerial labor mar-
ket uses the performance of the firm to determine each manager's
outside opportunity wage. In short, each manager has a stake in the
performance of the managers above and below him and, as a conse-
quence, undertakes some amount of monitoring in both directions.
All managers below the very top level
have an interest in seeing that
the top managers choose policies for the firm which provide the most
positive signals to the managerial labor market. But by what mecha-
nism can top management be disciplined? Since the body designated
for this function is the board of
directors, we can ask how it might be
constructed to do its job. A board dominated by security holders does
not seem optimal or endowed with good survival properties. Diffuse
ownership of securities is beneficial in terms of an optimal allocation
of risk bearing, but its consequence is
that the firm's security holders
are generally too diversified across the
securities of many firms to take
much direct interest in a particular firm.
If there is competition among the top managers themselves (all
want to be the boss of bosses), then perhaps they are the best ones to
control the board of directors. They are most directly in the line of
fire from lower managers when the markets for securities and man-
agerial labor give poor signals about the performance of the firm.
Because of their power over the firm's decisions,
their market-
determined opportunity wages are also likely to be most affected
by
market signals about the performance of the firm. If they are also in
competition for the top places in the firm, they may be the most
informed and responsive critics of the firm's performance.
Having gained control of the board, top management may decide
that collusion and
expropriation of security
holder wealth are better
than competition
among themselves.
The
probability
of such collusive
arrangements might be lowered, and the viability
of the board as a
market-induced mechanism for low-cost internal transfer
of control
might be enhanced, by the
inclusion of outside directors. The latter
might best be regarded as professional
referees whose task is to
stimulate and oversee the competition
among
the firm's
top
mana-
294
JOURNAL OF POLITICAL
ECONOMY
gers. In a state of advanced evolution of the external markets that
buttress the corporate firm, the outside directors are
in their turn
disciplined by the market for their services which prices them ac-
cording to their performance
as referees.
Since such a system of
separation of security ownership from control is consistent with the
pressures applied by the managerial labor market, and since it
likewise operates in the interests of the firm's security holders, it
probably has good survival properties.3
This analysis does not imply that boards of directors are likely to be
composed entirely of managers and outside directors. The board is
viewed as a market- induced institution, the ultimate internal monitor
of the set of contracts called a firm, whose most important role is to
scrutinize the highest decision makers within the firm. In the team or
nexus of contracts view of the firm, one cannot rule out the evolution
of boards of directors that contain many different factors of produc-
tion (or their hired representatives), whose common trait is that their
marginal products are affected by those of the top decision makers.
On the other hand, one also cannot conclude that all such factors will
naturally show up on boards since there may be other market- induced
institutions, for example, unions, that more efficiently monitor mana-
gers on behalf of specific factors. All one can say is that in a competi-
tive environment lower-cost sets of monitoring mechanisms are likely
to survive. The role of the board in this framework is to provide a
relatively low-cost mechanism for replacing or reordering top mana-
gers; lower cost, for example, than the mechanism provided by an
outside takeover, although, of course, the existence of an outside
market for control is another force which helps to sensitize the inter-
nal managerial labor market.
The perspective suggested here owes much to, but is nevertheless
different from, existing treatments of the firm in the property rights
literature. Thus, Alchian (1969) and Alchian and Demsetz (1972)
comment insightfully on the disciplining of management that takes
place through the inside and outside markets for managers. However,
they attribute the task of disciplining management primarily to the
risk bearers, the firm's security holders, who are assisted to some
extent by managerial labor markets and by the possibility of outside
takeover. Jensen and Meckling (1976) likewise make control of man-
3 Watts and Zimmermian (1978) provide a similar description of the market-induced
evolution of
and, as a
the viability of the set of contracts called the firm. Like the
consequence,
stimutilate
outside directors, the outside auditors are policed by the market for their
services which
prices them in large part on the basis of how well they resist perverting the interests of
one set of factors (e.g., security holders) to the benefit of other factors
(e.g., manage-
ment). Like the professional outside director, the welfare of the outside auditor de-
pends largely on
THEORY
OF THE
FIRM
295
agement the province of the firm's risk
bearers,
but
they
do not
allow
for any assistance from the
managerial labor market. Of all the
au-
thors in the property- rights
literature, Manne (1965, 1967)
is most
concerned with the market for
corporate
control. He
recognizes that
with diffuse security
ownership management
and risk
bearing are
naturally separate functions. But for
him, disciplining management is
an
job
which in the first instance falls
on a
firm's
organizers and later on specialists in the
process
of outside
takeover.
When
management and risk bearing are viewed as
naturally sepa-
rate factors of production,
looking at the market for risk
bearing from
the viewpoint of portfolio
theory tells us that risk bearers are
likely to
spread their wealth across
many firms and so not be
interested in
directly controlling the
management of any individual firm.
Thus,
models of the firm, like
those of Alchian-Demsetz
and Jensen-
Meckling, in which the control of
management falls primarily on the
risk bearers, are not likely to
allay the fears of those
concerned with
the apparent incentive
problems created by the separation of
security
ownership and control. Likewise, Manne's
approach,
in which
the
control of
management relies primarily on the
expensive mechanism
of -an outside
takeover, offers little comfort. The
viability of the large
corporation with diffuse
security ownership is better
explained
in
terms of a model where
the primary disciplining of
managers comes
through managerial labor
markets, both within and
outside of the
firm, with assistance from
the panoply of internal and
external
monitoring devices that evolve to
stimulate the ongoing efficiency
of
the corporate
form, and with the market for
outside takeovers pro-
viding discipline of last
resort.
The Viability of Separation of
Security
Ownership and Control: Details
The preceding is a general
discussion of how pressure from
manage-
rial labor markets helps to
discipline managers. We now
examine
somewhat more
specifically conditions
under which the discipline
imposed by managerial labor
markets can resolve potential
incentive
problems associated with the
separation of security ownership
and
control of
the firm.
To focus on the problem
we are trying to solve, let us
first examine
the situation
where the manager is also the
firm's sole security holder,
so that there is
clearly no incentive problem.
When he is sole security
holder, a manager consumes
on the job, through shirking,
perqui-
sites, or incompetence,
to the point where these yield
marginal ex-
pected utility equal to that
provided by an additional dollar of
wealth
usable for consumption
or investment outside of the
firm. The man-
296
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ager is induced to make this specific decision because he pays directly
for consumption on the job; that is, as manager he cannot avoid a full
ex post settling up with himself as security holder.
In contrast, when the manager is no longer sole security holder,
and in the absence of some form of full ex post settling up for
deviations from contract, a manager has an incentive to consume
more on the job than is agreed in his contract. The manager perceives
that, on an ex post basis, he can beat the game by shirking or con-
suming more perquisites than previously agreed. This does not neces-
sarily mean that the manager profits at the expense of other factors.
Rational managerial labor markets understand any shortcomings of
available mechanisms for enforcing ex post settling up. Assessments
of ex post deviations from contract will be incorporated into contracts
on an ex ante basis; for example,
through an adjustment of the
manager's wage.
Nevertheless, a game which is fair on an ex ante basis does not
induce the same behavior as a game in which there is also ex post
settling up. Herein lie the potential losses from separation of security
ownership and control of a firm. There are situations where, with less
than complete ex post settling up, the manager is induced to consume
more on the job than he would like, given that on average he pays for
his consumption ex ante.
Three general conditions suffice to make the wage revaluation im-
posed by the managerial labor market a form of full ex post settling
up which resolves the managerial incentive problem described above.
The first condition is that a manager's talents and his tastes for
consumption on the job are not known with certainty, are likely to
change through time, and must be imputed by managerial labor
markets at least in part from information about the manager's current
and past performance. Since it seems to capture the essence of the
task of managerial labor markets in a world of uncertainty, this
assumption is no real restriction.
The second assumption is that managerial labor markets appro-
priately use current and past information to revise future wages and
understand any enforcement
power inherent in the wage revision
process. In short, contrary to much of the literature on separation of
security ownership and control, we impute efficiency or rationality in
information processing to managerial labor markets. In defense of
this assumption, we note that the problem faced by managerial labor
markets in revaluing the managers of a firm is much entwined with
the problem faced by the capital market in revaluing the firm itself.
Although we do not understand all the details of the process, available
empirical evidence (e.g., Fama 1976, chaps. 5 and 6) suggests that the
capital market generally makes rational assessments of the value of