TY  - JOUR
AU  - Prendergast,Canice J.
TI  - Consumers and Agency Problems
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8445
PY  - 2001
Y2  - August 2001
UR  - http://www.nber.org/papers/w8445
L1  - http://www.nber.org/papers/w8445.pdf
N1  - Author contact info:
Canice Prendergast
Graduate School of Business
The University of Chicago
1101 E. 58th Street
Chicago, IL 60637
Tel: 773/702-9159
Fax: 773/702-2699
E-Mail: canice.prendergast@ChicagoBooth.edu
AB  - Consumers solve many agency problems, by pointing out when they believe that agents have made mistakes.  This paper considers the role that consumers play in inducing efficient behavior by agents.  I distinguish between two case: those where consumers have similar preferences to the principal, and those where consumer preferences diverge from those of the principal. In the former case, allowing consumer feedback improves allocations, and increasing consumer information is unambiguously beneficial.  In the case where consumers disagree with principals over desired outcomes, which characterizes many benefits given by the public sector, consumers feedback about the performance of agents can reduce welfare.  This may result in efficiently restricting the ability of consumers to complain about agent performance.
ER  -