What are the cost of the agency?

The cost of the agency is the term in economics that is used to identify the costs incurred by the company or other type of organization in the process of solving problems such as information asymmetry and differences in the goals and goals of administration and shareholders. The idea of ​​evaluating the cost of the agency is to try to find out what impact on the targets and flow of information between the agent or manager and shareholders have the total profitability of the organization. By properly identifying and solving the costs of the costs of the agencies, it is possible to minimize the influence of these factors, at least enough to allow the organization to proceed in advance rather than risk failure.

The concept of the cost of the agency acknowledges that there are basic differences in how shareholders, managers and even bond holders interpret their respective relations with the organization. Although they can share some common objectives and goals, there is potential at least someThe target goals that appear, which focus more on individual enrichment than the well -being of the whole. For example, managers can be more focused on building a reputation for themselves and maybe create their own bases in the structure of larger organizations. Shareholders can focus more on dividend earnings now and less on the future of business. Bond holders can only deal with a project associated with the bond problem and lose consideration of how the company's overall stability may have a negative impact on the return on this bond.

Agency costs usually begins to carefully examine the potential costs or risks associated with some type of agent or manager into the organizational structure. For example, one potential risk would be the possibility that an individual named as an officer in the company could try to use corporate assets for its own personal profit at the expense of the company. At the same time, the agency Agency also focuses on the costs associated with beforeBy seeing the potential abuse of power and resources and structuring the organization so that it is less likely to be abused. This may include the offer of incentives to key employees who promote loyalty and reduce the chance of abuse of resources or structure the accounting process so that many inspections and balances create a control department, which effectively prevents one individual to have too much energy in the organization.

At best, the costs of agencies are governed to protect the interests of all parties and the organization is able to prosper as a result. Although different types of costs or expenditures are identified, if the action carried out to create balanced divergence of control is not Effortive, the organization is very likely to suffer, sometimes until complete failure. If this happens, collective and personal goals and goals of managers, shareholders and bond holders are undermined to some extent, leading to losses for all involved.