Endogenous Asset Specificity in a Principal-Agent Model: An Interpretation of Managerial Myopia

Kwok, Siu-Kit Claudian
1994-08
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Endogenous Asset Specificity in a Principal-Agent Model: An Interpretation of Managerial Myopia

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1994-08

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Center for Economic Research, Department of Economics, University of Minnesota

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This paper studies the implications of an agency problem for the optimal asset specificity of a firm. The main result is that there exists a region in the parameter space such that the optimum in the presence of an agency problem has less specific assets and more frequent liquidation than in the absence of an agency problem. This result provides an interpretation of so-called ,managerial myopia. That is, the firm seems to be so concerned about the liquidation value of its investment that it is willing to sacrifice the expected output of its investment by using a less specific asset.

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Center for Economic Research Discussion Papers

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Discussion Paper
 275

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Kwok, S.C., (1994), "Endogenous Asset Specificity in a Principal-Agent Model: An Interpretation of Managerial Myopia", Discussion Paper No. 275, Center for Economic Research, Department of Economics, University of Minnesota.

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Kwok, Siu-Kit Claudian. (1994). Endogenous Asset Specificity in a Principal-Agent Model: An Interpretation of Managerial Myopia. Retrieved from the University Digital Conservancy, https://hdl.handle.net/11299/55722.

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