Agency theory is a very academic term. Essentially it involves the costs of resolving conflicts between the principals and agents and aligning interests of the two groups.
Agency theory suggests that the firm can be viewed as a nexus of contracts (loosely defined) between resource holders. An agency relationship arises whenever one or more individuals, called principals, hire one or more other individuals, called agents, to perform some service and then delegate decision-making authority to the agents. The primary agency relationships in business are those (1) between stockholders and managers and (2) between debtholders and stockholders. These relationships are not necessarily harmonious; indeed, agency theory is concerned with so-called agency conflicts, or conflicts of interest between agents and principals. This has implications for, among other things, corporate governance and business ethics. When agency occurs it also tends to give rise to agency costs, which are expenses incurred in order to sustain an effective agency relationship (e.g., offering management performance bonuses to encourage managers to act in the shareholders’ interests). Accordingly, agency theory has emerged as a dominant model in the financial economics literature, and is widely discussed in business ethics texts. Continue reading
In science and engineering, a black box is a device, system or object which can be viewed solely in terms of its input, output and transfer characteristics without any knowledge of its internal workings, that is, its implementation is “opaque” (black). Almost anything might be referred to as a black box: a transistor, an algorithm, or the human mind.
New types of retailing frequently start off with crude facilities, little prestige, and a reputation for cutting prices and margins. As they mature, they often acquire more expensive buildings, provide more elaborate services, impose higher margins, and become vulnerable to new competition. The author examines the history of numerous retail institutions to determine if this process really constitutes a “natural law of retailing.”