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A Principal-Agent Analysis of the Family: Implications for the Welfare State - Focus on Economic Sociology

American Journal of Economics and Sociology, The, Oct, 2001 by Lauchlan T. Munro

LAUCHLAN T. MUNRO (*)

ABSTRACT. This paper suggests that a principal-agent perspective may be one of several useful ways of analyzing the family. The principal-agent literature has so far ignored an important set of cases where the principal is incapable of defining and defending her own interests, and so is assigned an agent by law or custom. This paper applies principal-agent analysis to one such case, the family, where the child is taken as the principal and the parent is her agent. The principal-agent problem within families creates a prima facie case for certain state interventions to protect the interests of child-principals. The principal-agent perspective on the family sheds new light on two old debates: about provision of state welfare services in cash or in kind, and about user fees for social services.

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Introduction

PRINCIPAL-AGENT (P-A) ANALYSIS has emerged as a popular and useful tool in the social sciences since the early 1970s, especially in accounting, economics, finance, management, organization theory, and sociology. The literature has, however, confined its attention to two sub-sets of P-A problems, namely those of a commercial-economic-managerial variety and those in and around the public bureaucracy. While other useful perspectives on the family have been proposed and developed in recent decades, the usefulness of the P-A heuristic in analyzing the family has been greatly underestimated. I will argue that an analysis of principal-agent interactions within the family is a prerequisite for understanding the legitimate roles of the state and family in welfare provision. This is because the family represents a special case where the principal, the child, is incapable or only very imperfectly capable of defining and defending her interests and imposing them on her agent, the parent, and so is assigned an agent by law or custom. I will further argue that the potential for P-A conflicts within the family creates a prima facie case for certain types of state intervention in family life in order to protect children's rights and welfare. Analysis of potential P-A conflicts within the family also argues for provision of some state welfare services in kind rather than in cash, and against the charging of user fees for basic social services involving children.

Images of the Family

IN IMAGES OF ORGANIZATION, his ground-breaking work on organization theory, Gareth Morgan has proposed that we use the various "images" we have of organizations--organizations as machines, as organisms, as brains, as political systems, as cultures, etc.--to explore different parts of organizational life (Morgan 1986). The various images each shed light on certain aspects of organizations as social phenomena, but not on others. To see organizations as machines, for example, is to focus on organogrammes, formal hierarchies, management-by-objectives, and the like, while ignoring, for example, organizational culture and the subterranean politics that exist in all organizations. Every image is necessarily partial in that it has its strengths and weaknesses, and no one image provides a complete picture. To gain a comprehensive understanding of a given organization or situation, one must employ several of these images.

In this paper, I am proposing that a principal-agent perspective is a useful image to have of family life. In doing so, I am not proposing that principal-agent theory is the only possible way to view family life. On the contrary, many other perspectives on family life have been proposed--families as patriarchal structures, families as systems of cooperative conflict, families as the nexus for inter-generational compacts, families as hierarchical status relationships between parents and children--and all of these are useful and valid in their particular domains. My proposition is simply that we should add to this list families as a special case of principal-agent interactions, since this perspective highlights important social and political dilemmas and provides new insights into prominent questions of social policy.

III

Principal-Agent Problems: A Quick Overview

A PRINCIPAL-AGENT "relationship has arisen between two (or more) parties when one, designated as the agent, acts for, on behalf of, or as representative for the other, designated the principal, in a particular domain of decision problems" (Ross 1973:134). For Rees, the P-A problem is one of

delegated choice: one individual has the responsibility for taking decisions supposedly in the interests of one or more others, in return for some kind of payment. ... [W]hen this situation is modelled, its formal structure is applicable to an even wider class of problems, where no formal delegation relationship is explicitly involved. ... A contract is to be defined under which P (the principal) makes payment y to A (the agent). ... [T]he term 'contract' is to be interpreted very broadly. ..." (Rees 1985a:3; emphasis added)

The P-A problem lies in the fact that "a loss of control is inevitable" (Mitnick 1992:76) in any actual or implied delegation of choice by the principal to the agent. Differences of interest and/or information between the two parties mean that the agent may not act in the interests of the principal, and the costs and difficulties of selecting an appropriate agent and monitoring his performance mean that the principal may not be able to enforce her will on the agent.

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A Principal-Agent Analysis of the Family: Implications for the Welfare State - Focus on Economic Sociology

American Journal of Economics and Sociology, The, Oct, 2001 by Lauchlan T. Munro

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