Self-Interest Through Agency: An Alternative Rationale for the Principal-Agent Relationship

Abstract

Principal-agent relationships are typically motivated by efficiency gains from comparative advantage. However, such delegation may also arise because it allows principals the pursuit of selfish outcomes while avoiding explicitly selfish behavior. We report laboratory experiments in which principals repeatedly either decide how much money to share with a recipient or select agents to make sharing decisions on their behalf. Across several treatments, recipients receive significantly less when agents make allocation decisions. This results from principals seeking those agents willing to reliably share the least. We observe instances in which sharing is almost entirely extinguished when decisions are made through agents.

Keywords: fairness, principal-agent, experiments

JEL Classification: C72, D03, D64, D82, M54