An agency cost is an economic concept that refers to the costs associated with the relationship between a "principal" (an organization, person or group of persons), and an "agent". The agent is given powers to make decisions on behalf of the principal. However, the two parties may have different incentives and the agent generally has more information. The principal cannot directly ensure that its agent is always acting in its (the principal's) best interests.[1] This potential divergence in interests is what gives rise to agency costs.[2]
Common examples of this cost include:
according to the Friedman doctrine, the cost borne by shareholders (the principals) when corporate management (the agent) buys other companies to expand its power, or spends money on vanity projects, instead of maximizing the value of the corporation;[3]
the cost borne by the voters of a politician's district (the principals) when the politician (the agent) passes legislation helpful to large contributors to their campaign rather than the voters.[3]
Though effects of agency cost are present in any agency relationship, the term is most used in business contexts.
^Pay Without Performance by Lucian Bebchuk and Jesse Fried, Harvard University Press 2004 (preface and introduction)
^Jeffery Gordon, Wolf-Georg Ringe (2018). The Oxford Handbook of Corporate Law and Governance. Oxford University Press. pp. 164–166. ISBN 978-0-19-874368-2.
An agencycost is an economic concept that refers to the costs associated with the relationship between a "principal" (an organization, person or group...
Cost accounting is defined by the Institute of Management Accountants as "a systematic set of procedures for recording and reporting measurements of the...
value-adjusted levelized cost of electricity (VALCOE) is a metric devised by the International Energy Agency which includes both the cost of the electricity...
The Air Force Cost Analysis Agency (AFCAA) performs independent component cost analyses for major Air Force system programs as required by public law and...
other words, it is the total cost needed to bring a project to a commercially operable status. Whether a particular cost is capital or not depend on many...
A collection cost is the cost incurred to collect debt that is owed, a process called debt collection. This could include expenditures for hiring a collection...
for separately across a number of activities or projects. In health care, cost sharing occurs when patients pay for a portion of health care costs not covered...
in time. Large and rapid increases in cost occurred during the 1970s, especially in the United States. Recent cost trends in countries such as Japan and...
Railway costing is the calculation of the variable and fixed costs of rail movements. Variable costs are those that increase or decrease with changes...
Publishers purchase or receive ISBNs from an affiliate of the International ISBN Agency. A different ISBN is assigned to each separate edition and variation of...
in the United States. Canada Revenue Agency Capital gain "As easy as ACB: Understanding and tracking adjusted cost base with ETFs". Advisor. 2014-06-02...
controversy; it requires cost-benefit analysis for certain regulatory actions. In a narrower sense, the term independent agency refers only to these independent...
granted statutory status under the Cost and Management Accountants Act, 1966 for the regulation of the profession of Cost and Management Accounting. ICMAP...
Social cost in neoclassical economics is the sum of the private costs resulting from a transaction and the costs imposed on the consumers as a consequence...
The Central Intelligence Agency (CIA) /ˌsiː.aɪˈeɪ/, known informally as the Agency, metonymously as Langley and historically as the Company, is a civilian...
The National Security Agency (NSA) is an intelligence agency of the United States Department of Defense, under the authority of the Director of National...
identity card issued by the Tax Agency cost the same as the identity card issued by the Police, but the Tax Agency identity card is of lesser use since...
Total cost of ownership (TCO) is a financial estimate intended to help buyers and owners determine the direct and indirect costs of a product or service...
A news agency is an organization that gathers news reports and sells them to subscribing news organizations, such as newspapers, magazines and radio and...
A cost of funds index or COFI is a regional average of interest expenses incurred by financial institutions, which in turn is used as a base for calculating...
1.5 °C Climate Goal, International Renewable Energy Agency, Abu Dhabi, p. 91. 2023 Levelized Cost Of Energy+. Lazard. April 12, 2023. p. 27. Retrieved...
The Defense Commissary Agency (DeCA), headquartered at Fort Gregg-Adams, Virginia, is an agency of the United States Department of Defense (DoD) that operates...