Matt Yglesias, like many Austrians, misses the role of government in "Agency Problems and Corporate Misconduct"
As I noted yesterday, liberal blogger Matt Yglesias has a useful blog post up – “Agency Problems and Corporate Misconduct” – in response to Scott Sumner; unfortunately his comment thread has fallen into blind, clear-sighted partisan bickering.
The post itself is short and worth a read; I left the following comment:
June 9th, 2010 at 4:01 am
Excellent points, Matt; you seem more conservative (and Austrian) than the Chicagoans.
However, you fail to note that government itself pays a crucuial role in “agency problems” via its grant to shareholders of limited liability (and unlimited life+purposes, and ability to ring-fence riskier activities in subsidiary corporations). Besides leading directly to large corporations, it incentivizes shareholders to passively enjoy dividends while not investigating too closely the systematic shifting of risk to others via pollution, or efforts to seek political influence, that accompany dividends that cannot be clawed back.
Lack of dowside risk ironically also frees management from close shareholder oversight, leading to heighted internal moral hazard, as management can look after their own compensation and bonuses while leaving shareholders with downside risks for poor management (as we have seen in Wall St firms once they went public).
For those interested, I have a string of posts on limited liability here:
http://mises.org/Community/blogs/tokyotom/search.aspx?q=limited
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