A Principal-Agent Approach to a Self-administered Organization with an Elected Principal

We consider a self-administered organization characterized by a principal elected by the agents and establish conditions under which self-administration leads to either stronger or weaker incentives than an organization which only pursues exogenous objectives such as profit maximization. While the output of the organization that accrues to society is controlled by the effort of the agents and by nature, the pay-off of the principal also includes rents from office. Generally, two different contractual regimes may obtain, either a hard regime with strong incentives and low fixed payments or a soft regime with weak incentives and high fixed payments. JEL classification: D23, D73, H41, L32.