Principal-Agent Theory and Organisational Change

ABSTRACT Principal-agent theory has provided a powerful and all-encompassing framework for public sector organisation. Its influence in New Zealand since the late-1980s has been particularly strong, despite questions over its appropriateness. This article discusses the case of health information management in New Zealand's health sector which, through the 1990s, endured several policy changes. One constant during this period was reliance on principal-agent theory-inspired organisation. The article illustrates how principal-agent theory failed to create an environment conducive to effective development of health information systems. By the end of the 1990s, when principals wanted collaboration in health care, information systems developed in the preceding competitive period, with no central coordination, were simply inadequate. Based on experiences outlined in the article, four areas are noted in which principal-agent theory may need revision.