Restoring Trust in Finance: From Principal–Agent to Principled Agent

Menzies, G; Hay, D; Simpson, T; Vines, D

Restoring Trust in Finance: From Principal–Agent to Principled Agent

Menzies, G

Hay, D Simpson, T Vines, D

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Publication Type:: Journal Article
Citation:: Economic Record, 2019, 95 (311), pp. 497 - 509
Issue Date:: 2019-12-01

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Field	Value	Language
dc.contributor.author	Menzies, G https://orcid.org/0000-0003-4133-2282	en_US
dc.contributor.author	Hay, D	en_US
dc.contributor.author	Simpson, T	en_US
dc.contributor.author	Vines, D	en_US
dc.date.issued	2019-12-01	en_US
dc.identifier.citation	Economic Record, 2019, 95 (311), pp. 497 - 509	en_US
dc.identifier.issn	0013-0249	en_US
dc.identifier.uri	http://hdl.handle.net/10453/138877
dc.description.abstract	© 2019 Economic Society of Australia Banking solves the principal–agent problem with incentive contracts which assume a Homo Economicus representative agent. However, professions can solve the principal–agent problem by assuming a ‘Reasonable Person’ representative agent, from tort law, who reliably tells the truth about hidden action. We describe a non-virtuous circle in finance, which is a negative feedback loop between motivation crowding out arising from incentive contracts, and the subsequent need to offer incentive contacts because agents change from the Reasonable Person to Homo Economicus. We prescribe less reliance on incentive contracts in the practice of finance, and on Homo Economicus in the theory of finance.	en_US
dc.relation.ispartof	Economic Record	en_US
dc.relation.isbasedon	10.1111/1475-4932.12494	en_US
dc.rights	info:eu-repo/semantics/embargoedAccess
dc.subject.classification	Economics	en_US
dc.title	Restoring Trust in Finance: From Principal–Agent to Principled Agent	en_US
dc.type	Journal Article
utslib.citation.volume	311	en_US
utslib.citation.volume	95	en_US
utslib.for	1501 Accounting, Auditing and Accountability	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
utslib.for	14 Economics	en_US
utslib.for	15 Commerce, Management, Tourism and Services	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	open_access	*
utslib.copyright.embargo	2021-12-01T00:00:00+1100
pubs.issue	311	en_US
pubs.publication-status	Published	en_US
pubs.volume	95	en_US

Abstract:

© 2019 Economic Society of Australia Banking solves the principal–agent problem with incentive contracts which assume a Homo Economicus representative agent. However, professions can solve the principal–agent problem by assuming a ‘Reasonable Person’ representative agent, from tort law, who reliably tells the truth about hidden action. We describe a non-virtuous circle in finance, which is a negative feedback loop between motivation crowding out arising from incentive contracts, and the subsequent need to offer incentive contacts because agents change from the Reasonable Person to Homo Economicus. We prescribe less reliance on incentive contracts in the practice of finance, and on Homo Economicus in the theory of finance.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/138877