Agency Costs, Employment Contracts, and Labor Unions
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Description
The division of labor is a common feature of modern social institutions. By coordinated activities, transacting parties can realize gains that exceed those obtained first by working independently and then by trading finished products to discrete market transaction. The inexorable voluntary movement to complex organizations is itself powerful evidence of large organizations may be regarded as socially inevitable, their precise form is not, for a great deal of freedom remains in structuring their internal operation with a view of minimizing the relevant costs. This paper examines one kind of costs: the agency costs that arise because firms must operate through individuals who act as agents for others, rather than on their own account. Its central focus is labor markets. By way of background, the first section of the paper offers some brief introductory remarks about the problem of agency costs as applied to other contracting contexts. Thereafter the agency cost question is examined in three separate labor market environments: first, unregulated markets without any coordinated behavior between workers; second, unregulated markets in which coordination between workers is both allowed and feasible; and third, markets under the National Labor Relations Act, with its systems of collective bargaining through exclusive union agents.
Source Publication
Principals and Agents: The Structure of Business
Source Editors/Authors
John W. Pratt, Richard Zeckhauser
Publication Date
1985
Recommended Citation
Epstein, Richard A., "Agency Costs, Employment Contracts, and Labor Unions" (1985). Faculty Chapters. 417.
https://gretchen.law.nyu.edu/fac-chapt/417
