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In economic theory, the principal-agent approach (also called agency theory) is part of the field contract theory. [36] [37] In agency theory, it is typically assumed that complete contracts can be written, an assumption also made in mechanism design theory. Hence, there are no restrictions on the class of feasible contractual arrangements ...
Public finance refers to the monetary resources available to governments and also to the study of finance within government and role of the government in the economy. [1] Within academic settings, public finance is a widely studied subject in many branches of political science , political economy and public economics .
Agency costs in the government may include the likes of government wasting taxpayers money to suit their own interest, which may conflict with the general tax-paying public who may want it used elsewhere on things such as health care and education. The literature however mainly focuses on the above categories of agency costs.
Contract theory in economics began with 1991 Nobel Laureate Ronald H. Coase's 1937 article "The Nature of the Firm". Coase notes that "the longer the duration of a contract regarding the supply of goods or services due to the difficulty of forecasting, then the less likely and less appropriate it is for the buyer to specify what the other party should do."
Likewise, in finance literature, the acknowledgment of information asymmetry between organizations challenged the Modigliani–Miller theorem, which states that the valuation of a firm is unaffected by its financial structure. It challenges the theorem as one of the key assumptions is that investors would have the same information as a corporation.
Bureaucratic drift in American political science is a theory that seeks to explain the tendency for bureaucratic agencies to create policy that deviates from the original mandate. [ 1 ] [ 2 ] [ 3 ] The difference between a bureaucracy's enactment of a law and the legislature's intent is called bureaucratic drift.
[3] [4] There is a later version of the benefit theory known as the "voluntary exchange" theory. [5] Under the benefit theory, tax levels are automatically determined, because taxpayers pay proportionately for the government benefits they receive. In other words, the individuals who benefit the most from public services pay the most taxes.
The interests of the agency's constituency (the interest groups) are met, while the needs of consumers (which may be the general public) are passed over. [ 20 ] That public administration may result in benefiting a small segment of the public in this way, may be viewed as problematic for the popular concept of democracy if the general welfare ...