An Application of Principal Agent Theory to Contractual Hiring Arrangements within Public Sector Organizations

Abstract

This paper critically examines the application of principal agent theory to contractual hiring arrangements of employees in public sector organizations as a contemporary alternative recruitment strategy. Globally, developed and developing nations within the public sector are seeking ways where they can reduce public expenditure and debt while at the same time attempting to increase productivity and efficiency gains by using cost containment initiatives. Thus, private sector methods of outsourcing and contracting are identified as more economically feasible strategies given global recessions and other budgetary constraints within these public agencies. Hence, public management and administration scholars have alluded to the catchy phrase of “doing more with less” (see [1]). Thus, the paper from a theoretically exploratory perspective analyzes how principal agent theory can be applied to the hiring of contingent employees within this sector and the agency problems that may likely arise as a result of these arrangements and their probable economic implications for the said sector.