Resolving International Agency Costs in East/West Joint Ventures

Armand Picou, William R. McDanill and Sidney Rosenberg

The purpose of this paper is to discuss recent changes in the East Block (EB) from an agency perspective using East Germany as a proxy for events affecting the entire EB. Several hypotheses (ownership, currency convertibility, political restructuring, and tax incentives) may be related to EB events which can cause a reduction in agency costs. The findings indicate that agency costs will be significantly reduced by convertibility of the East German Mark. Ownership of the factors of production does not significantly affect the agency cost of joint venture contracts. Political restructuring apparently offers little potential in reducing agency cost of perk consumption. Tax incentives weakly support reduced agency costs due to changes in trading status for EB nations.