Agency theory is a way of thinking about relationships between people where one person is the agent, or representative, of another. This can happen in business, politics, or other areas where one person has power to act on behalf of another. Agency theory can help explain why people do things that may not be in the best interest of the person they are representing. It can also help explain disputes that may arise between people in these relationships. What is the purpose of agency? The purpose of an agency is to represent a company's interests and oversee its business dealings. An agency can be created to handle a specific task or area of responsibility, or it can be established as a general purpose entity. The agency's staff works on behalf of the company to maintain relationships with customers, vendors, and other business partners. They may also be responsible for managing the company's finances, marketing, and human resources. What is agency theory in business? Agency theory is a theory of the relationship between principals and agents in a business setting. The theory posits that there is an inherent conflict of interest between principals and agents, because agents are typically motivated by their own self-interest rather than the best interests of the principals they represent. The theory is used to explain and analyze a variety of phenomena in business, including the role of incentives in aligning the interests of agents and principals, the role of information asymmetry in creating agency problems, and the role of agency costs in shaping business decisions. What are the elements of agency? The elements of agency are those factors which contribute to the formation of an agency relationship. The four main elements of agency are:
1. An agent must be appointed by a principal.
2. The agent must be authorised by the principal to act on their behalf.
3. The agent must be acting for the benefit of the principal.
4. The agent must have the necessary skills and knowledge to perform their duties.
What are the three types of agency relationships?
The three types of agency relationships are:
1. Principal-agent: This type of relationship exists when one party (the "principal") delegates authority to another party (the "agent") to act on the principal's behalf. The agent is then obligated to act in the best interests of the principal.
2. Principal-broker: This type of relationship exists when a principal (the "client") delegates authority to a broker to find a suitable property or investment for the client. The broker is then obligated to find the best possible option for the client, and is compensated through a commission from the client.
3. Agent-broker: This type of relationship exists when an agent (the "listing agent") delegates authority to a broker (the "selling agent") to find a buyer for a property the agent has listed. The selling agent is then obligated to find the best possible buyer for the property, and is compensated through a commission from the agent. What are the 5 types of agency? The 5 types of agency are: