Principal - Agent Theory Applied Research In The Telecommunications Industry Regulator

Classical economists hold that market is omnipotent, that is, through free market competition, resources can be efficiently distributed. However, this theory is based upon an assumption that there is no conflict in market transactions. More and more people have discovered that due to information gap, market economy may not necessarily results in optimum economic performance.The factors contributing to information gap primarily are uncertainty, social employment structure and development of specialized jobs. Social employment structure exacerbates the information gap, which results in differences in people's abilities to obtain information. These differences in turn deepen the gap.Telecommunication is part of infrastructure systems for a country's social and economic development. It is a lifeline for a country's development. The telecommunication industry is an important indicator measuring a country's economic security. Currently, countries around the world have viewed the telecommunication industry as an important industry.The industry monopolistic make the telecommunication operators who possess information privileges have been maximizing their profits. In this article, I propose that the supervision departments for the telecommunication industry should act as representatives for consumers and make efforts to defend consumers' rights and guarantee fair competitions in the industry.The development of principal-agent theory has provided a viable way for analyzing relationships under the circumstances of information imbalance. Special mechanisms (negative or positive) have been established to motivate the agent, so that the objective function for the agent could be increasingly closer to that for the principal and the losses for the agent could be minimized. Where there is an information gap, a sound system is the best approach to enhancing the agent's efficiency. Economic facts have shown that the gaps between the developing countries and the developed ones mainly stem from differences in their respective social systems. The bottlenecks created by the social systems have hindered efficient distribution of social resources in the developing countries. We have to recognize that a good system is not a panacea for all social problems. As China is transitioning from the planned economy to a market-oriented one, what we need most now is a sound mechanism for motivation and restriction. Therefore, we should attach importance to the supervision mechanism in the telecommunication industry.In this article, I use the Principal-Agent Theory to discuss some issues regarding the supervision mechanism for China's telecommunication industry. Some suggestions have been proposed in hopes that they could be of help to the sound development of the telecommunication industry.