Economic Analysis of Agency Law – Episode 3: Costs and Benefits of Agency

In Episode 3 of Season 3, Professor Seth C. Oranburg takes a deep dive into the complex economics behind delegating authority. What might appear to be a simple transfer of power unfolds into a nuanced analysis of how delegation both streamlines operations and generates hidden transaction costs. Drawing on insights from economic giants like Frank Knight, Joseph Schumpeter, and Israel Kirzner, Professor Oranburg explores key questions: Does delegating authority reduce overall transaction costs, or does it simply shift them elsewhere?

Using the whimsical metaphor of Hotch Hotch—a frustrated mayor, a lazy bee watcher, and a cascade of layers of supervision—this episode vividly illustrates how each additional layer of oversight introduces its own costs, from search and negotiation expenses to monitoring and enforcement challenges. Tune in to understand how principals can better balance the benefits of empowering agents against the risks of uncertainty and inefficiency, and learn how economic theory informs practical solutions in real-world agency relationships.

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