Managing the Manager: An Application of the Principal Agent Model to the Hudson's Bay Company

Controlling the ability of agents to operate in their own self-interest motivates much of the recent industrial organization literature. However, that literature is generally intractable to empirical testing. Yet we need to know whether firms can successfully attenuate managerial opportunism. The Hudson's Bay Company provides the context, and its records provide the data, for the authors' analysis. They model its agency problem and using that model the authors simulate and calibrate the company's experience. Their numerical estimates show that agency was a potential problem for chartered companies but the Hudson's Bay Company had control of its managers. Copyright 1993 by Royal Economic Society.

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