Principals delegate precisely because they cannot specify or evaluate agent performance.
Evidence
But many principals hire a mechanic because they have not the faintest idea whether the parts are in working order and a stockbroker because they do not know when it is best to buy, sell, or hold on to their securities. It is precisely because principals are incapable of contractual specification that many of them enter agency relationships in the first place. Moreover, as critiques of contingent-claims contracting assert, uncertainty and complexity make it costly, if not impossible-even for sophisticated parties-to anticipate all future contingencies and specify appropriate adaptations at the outset — Shapiro, Susan P., The Social Control of Impersonal Trust, 48
Categorization
- DEFINE: Explains why agency relationships arise from principals’ incapacity to contractually specify performance.
- XREF: connects to: People delegate precisely because they lack the expertise to specify the task. — Shapiro, Susan P., The Social Control of Impersonal Trust, 48; Trust-based agency relationships fail when the principal cannot exit or evaluate. — Shapiro, Susan P., The Social Control of Impersonal Trust, 55
Related
- People delegate precisely because they lack the expertise to specify the task. (similarity 0.93)
- Trust-based agency relationships fail when the principal cannot exit or evaluate. (similarity 0.82)
Broader Connections
- Trust-based agency relationships fail when the principal cannot exit or evaluate.
#expands(0.85) — Shapiro, Susan P., The Social Control of Impersonal Trust, 55