Saturday, February 28, 2009

Corporate Managers

This article is a good one.  It is about something that I have known for some time.  One of the main problems with big corporations is that the property rights of the actual owners are not respected.  The managers of these companies have accumulated more and more power, and have used that power for personal gain at the expense of the shareholders.

This is a well-known problem in the sub-field of Economics called Industrial Organization.  In its general form, is is knows as the 'principal-agent problem' and it applies in any situation where one person is hired to work for another.  The person who owns the property and/or has the goals is the principal and the person being hired is the agent.

It is easy to show that the agents will always be self-serving unless their system of incentives is well-designed.  I support laws and regulations that help shareholders control managers, and I even support laws that place limits on managers under the assumed interest of shareholders.  This kind of government intervention is not socialism.  It is the protection of property rights and the enforcement of contracts, which is the basic function of government.  The failure to do this job properly is one of the causes of the current mess.

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