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Laura Langbein

Principal–agent theory applies in both the private and public sectors, but the public sector is the more general form of agency theory because it describes organizations based on the extent to which outputs (and outcomes) can be monetized, including information asymmetry, transactions costs, agent discretion, the salary structure, performance measurement, and the common conclusion that public organizations are inefficient. It uses this framework to explain common implementation difficulties in public sector organizations as varied as the Veterans’ Health Administration, local criminal law enforcement, social workers, and teachers. It concludes that once we account for the extent to which performance cannot be monetized and include multiple and disagreeing principals in studies of the behavior of public agents, we may find that they have less discretion than we previously thought: they are only choosing the principal, not the principle.