Alternative Causes to Agency Problems in Inter-Organizational Relationships – Hidden Expectations vs. Hidden Action

Principal-agent situations are cases where work is delegated, e.g. from an employer to employee or from a buyer to supplier. This research focuses on the problems that can arise in such situations, focusing on buyer-supplier relationships. An underlying assumption in agency research is opportunism: if the principal cannot monitor how the work is completed (hidden action exists), the agent will put in less effort and the principal will be unsatisfied with the results. This research challenges this assumption, arguing that unsatisfactory results in buyer-supplier relationships could instead be caused by hidden expectations: the principal has not explained in sufficient detail what they want the agent to do, thus the agent is unable to complete the task well, despite no opportunism. The goal is to investigate whether problems in buyer-supplier relationships are due to hidden expectations, rather than hidden action and find the correct governance mechanisms to these situations.