Back to Jensen and Meckling (1976)

Jensen and Meckling important contributions:

1. Defined agency (i.e., contracting) costs
• sum of monitoring costs, bonding costs, and residual loss
2. Private incentives exist to minimize agency costs
• agency costs are a real cost
3. The firm is really just a collection of contracts
• don't personify the firm
4. Illustrate 1, 2, and 3 by looking at a very simple ownership structure problem
• too simple?