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From Agency Costs to Delegation Costs: Revisiting Agency Theory in the Age of Agentic AI

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1989, Kathleen M. Eisenhardt published a landmark review of Agency Theory that would influence decades of thinking across economics, organizational behavior, finance, governance, and management. While the theory is often associated with incentives and monitoring mechanisms, its deeper contribution was to illuminate a more fundamental organizational challenge: how do we govern delegated authoritywhen information is imperfect and uncertainty is unavoidable? At its core, Agency Theory examines the relationship between a principal and an agent. Shareholders delegate authority to executives, boards delegate authority to management, and clients delegate authority to advisors. The challenge arises because the principal cannot perfectly observe what the agent knows, what actions are being taken, or whether those actions remain aligned with the principal's interests. Agency Theory provided a framework for understanding these tensions through concepts such as information asymmetry, incentive...