Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure
We define the concept of agency costs, show its relationship to the separation and control issue, and investigate the nature of the agency costs generated by the existence of debt and outside equity.
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Agents, not machines
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Managers maximize their own utility, not shareholder value by default. Agency costs are the price of delegation: monitoring, bonding, residual loss. Corporate structure is an incentive device.
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Debt and equity as constraints
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Capital structure is not neutral. Debt forces discipline; equity dilutes control. The paper treats the firm as a nexus of contracts, not a black box that "decides."
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Incentives everywhere
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The lens applies to any organization, including labs building frontier models. Who owns the reward function? Who bears the cost of failure?