Multiple principals, multiple problems: Implications for effective governance and a research agenda

Abstract

The multiple principal problem refers to multiple collective action problems organizations face when they must balance (competing) interests of multiple stakeholders under joint service delivery. It negatively affects different types of organization, yet we know little about how organizations (can) mitigate it. We expand a framework based on principal‐agent theory, review the literature, and consider implications for effective governance of joint service delivery in the public sector. We observe that joint service delivery can lead to free riding and duplication in monitoring, lobbying by principals, and increased autonomy for agents, leading to inefficiency. We build a research agenda and tentatively suggest based on the literature that an interface approach, where an elected unitary actor is placed in a middle tier between politics and service delivery, might best mitigate the multiple principal problem, which is currently not dealt with effectively in public management.
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ORIGINAL ARTICLE
Multiple principals, multiple problems: Implications
for effective governance and a research agenda
for joint service delivery
Bart Voorn
1
| Marieke van Genugten
1
| Sandra van Thiel
2
1
Institute for Management Research, Radboud
University, Nijmegen, The Netherlands
2
Department of Public Administration,
Radboud University, Nijmegen, The
Netherlands
Correspondence
Bart Voorn, Institute for Management
Research, Radboud University, Postbus 9018,
Nijmegen 6500 HK, The Netherlands.
Email: b.voorn@fm.ru.nl
The multiple principal problem refers to multiple collective action
problems that organizations face when they must balance (compet-
ing) interests of multiple stakeholders under joint service delivery.
It negatively affects different types of organization, yet we know
little about how organizations (can) mitigate it. We expand a frame-
work based on principal–agent theory, review the literature, and
consider implications for effective governance of joint service
delivery in the public sector. We observe that joint service delivery
can lead to free-riding and duplication in monitoring, lobbying by
principals, and increased autonomy for agents, leading to ineffi-
ciency. We build a research agenda and tentatively suggest, based
on the literature, that an interface approach, where an elected uni-
tary actor is placed in a middle tier between politics and service
delivery, might best mitigate the multiple principal problem, which
is currently not dealt with effectively in public management.
1|INTRODUCTION
Is joint service delivery beneficial for public sector organizations? We know from the literature on inter-municipal
cooperation that knowledge sharing and scale economies frequently make joint service delivery efficient (Hulst et al.
2009; Bel et al. 2014; Bel and Warner 2015; Silvestre et al. 2017; Voorn et al. 2017). However, joint service delivery
is also prone to failure, due to multiple possible collective action problems (Feiock 2009, 2013). For inter-municipal
service delivery, Garrone et al. (2013) find that conflict over objectives can trickle down to insufficient or incoherent
directives to boards; Sørensen (2007) finds insufficient monitoring due to free-riding. We observe similar inefficien-
cies for parliaments and agencies (McCubbins et al. 1987; Moe 1987; Wood and Waterman 1991; Hammond and
Knott 1996; Koppell 2005; Dehousse 2008; Schillemans and Bovens 2015), public–private partnerships (Bognetti
Received: 8 May 2018 Revised: 30 December 2018 Accepted: 11 January 2019
DOI: 10.1111/padm.12587
This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribution and
reproduction in any medium, provided the original work is properly cited.
© 2019 The Authors. Public Administration published by John Wiley & Sons Ltd.
Public Administration. 2019;97:671–685. wileyonlinelibrary.com/journal/padm 671

and Robotti 2007; Da Cruz and Marques 2012), and private firms with dispersed ownership (Young et al. 2002; Su
et al. 2007; Ward and Filatotchev 2010; Lin and Chuang 2011).
Theory has focused on understanding these collective action problems in joint service delivery separately.
Models of Gailmard (2009), Khalil et al. (2007), and Varian (1989) establish monitoring complexities; Dixit (2002),
Martimort (1992), and Stole (1997) demonstrate an incentive-setting problem; and Hammond and Knott (1996),
McCubbins et al. (1987), and Schillemans and Bovens (2015) show difficulties of steering and accountability. Yet, the
literature remains dispersed, policy recommendations for joint service delivery remain complex and incoherent, and
predictive powers of models of joint service delivery remain weak. Some authors have begun collocating the collec-
tive action problems inherent to joint service delivery under a single term,
1
hoping to find coherence to this multiple
principal problem (e.g., Waterman and Meier 1998; Miller 2005; Dehousse 2008).
In this article, we expand a framework grounded in principal–agent theory to understand the multiple principal
problem and build a research agenda for governance. In section 2, we describe our study’s background and explicate
our approach. In section 3, we derive the framework and form hypotheses. In section 4, we review and synthesize
the extant literature on the multiple principal problem, test the framework, and highlight implications for joint service
delivery. In section 5, we consider typical organizational responses to the multiple principal problem, and highlight
problems these responses face. In section 6, we suggest a solution to the multiple principal problem, based on an
interface approach and grounded in median voter theorem. In section 7, we summarize, emphasize limitations, offer
potential avenues for research, and conclude.
2|BACKGROUND AND APPROACH
Joint service delivery is widespread, for good reasons. When organizations cooperate, they can engage in risk sharing,
specialize, and capture scale economies (Bel and Warner 2015; Silvestre et al. 2017). Accordingly, we observe that many
firms and foundations have multiple shareholders (e.g., Maury and Pajuste 2005), that governments and agencies, local
councils, and political parties frequently cooperate (e.g., Bouckaert et al. 2016), that public–private partnerships are used
more frequently (Hodge and Greve 2007), and that cooperation between the public sector and the non-profit sector is
rising (Warner and Hebdon 2001). Such cooperation is called collaborative or joint service delivery when it exists for
the delivery of (public) services (Hulst et al. 2009; Hilvert and Swindell 2013); alternative terms, such as ‘joined-up gov-
ernment’(Hood 2005; Silvestre et al. 2017) and ‘collaborative governance’(Ansell and Gash 2008), are also used.
Empirical research demonstrates that joint service delivery is often beneficial, albeit not problem-free (Bel and
Warner 2015). Problems occur because cooperation requires (partial) externalization of decision-making (Argento
et al. 2009), which brings complexities. Collective action problems occur when the interests of individual stake-
holders conflict with the collective interest of all stakeholders in the collaboration, leading to sub-optimal outcomes.
Stakeholders face transaction costs to mitigate those problems, including regulation and monitoring costs. Collective
action problems and transaction costs together affect joint service delivery through ex-post inefficiency, where col-
laboration is less efficient than it could have been, or ex-ante inefficiency, when otherwise profitable cooperation
does not occur. We know less about equity effects: how inefficiencies affect some stakeholders more than others
(recent work by Cäker and Nyland 2017 and Spicer 2017 are welcome exceptions).
Many academics have focused on individual collective action problems and solutions to them (McCubbins et al.
1987; Varian 1989; Martimort 1992; Hammond and Knott 1996; Stole 1997; Dixit 2002; Khalil et al. 2007; Gailmard
1
Researchers utilize many terms to describe the problem. We use the term multiple principal problem, as we find that principal–agent
theory explains collective action problems well overall; our terminology follows the works of Dixit (2002), Estache and Martimort
(1999), Miller (2005), Van Thiel (2016), and Waterman and Meier (1998). Other terms used to describe the same problem include
(the problem of) ‘multiple accountabilities’(Koppell 2005; Schillemans and Bovens 2015), ‘common agency’(Dixit et al. 1997), ‘princi-
pal–principal conflict’(Young et al. 2002; Su et al. 2007; Ward and Filatotchev 2009; Lin and Chuang 2011), and ‘serving two masters’
(Da Cruz and Marques 2012).
672 VOORN ET AL.

2009; Schillemans and Bovens 2015). While this endeavour has been fruitful, individual treatment of these collective
action problems has brought weak predictive powers for models of joint service delivery. Building a framework to
predict outcomes under multiple principals is crucial for understanding joint service delivery (Dehousse 2008) and is
this article’s ultimate aim.
We illustrate our theoretical case with the practical example of inter-municipal service delivery to demonstrate
how our framework emulates actual practice. Inter-municipal service delivery reflects benefits and problems of joint
service delivery, as current research shows that it is frequently quite successful (Dijkgraaf and Gradus 2007; Bel and
Warner 2015; Teles and Swianiewicz 2018), while many problems can be linked to collective action problems
(Bognetti and Robotti 2007; Sørensen 2007; Garrone et al. 2013; Bel and Warner 2015). We will refer to this practi-
cal example throughout the text. We emphasize that the framework applies to joint service delivery overall, and not
just in the context of our illustration; to show that our framework is applicable in a variety of settings, we incorporate
a literature review that explores multiple types of service organizations.
3|FRAMEWORK AND HYPOTHESES
3.1 |Framework
Consider a municipality that operates a municipally owned corporation and hires an expert director to manage it, as
frequently happens in Europe (Voorn, Van Thiel et al. 2018). The resulting relationship between the municipality and
director is a relationship between principal and agent, where the agent acts on behalf of the principal. Principal–agent
theory emphasizes the benefits of such relationships, which allow more expert service delivery. However, it also
emphasizes problems of asymmetric information and moral hazard (Fama and Jensen 1983): the director may have
objectives different from the municipality, and the municipality cannot take the director’s commitment for granted.
Therefore, the municipality needs to introduce governance to align the director’s interest with its own.
Under principal–agent theory, steering and monitoring are key governance mechanisms that can encourage agents
to act in principals’interest (Fama and Jensen 1983). For our hypothetical director-agent, steering protocols help: clear
municipal directives build awareness of expectations, and give the municipality criteria to audit. Similarly, incentives
such as variable pay can align the director’s interest with that of the municipality. Monitoring the director is also practi-
cal, presuming that it is not too costly. These steering and monitoring mechanisms increase the agent’saccountability.
Typically, principal–agent theorists consider the dyadic case of one principal, one agent, and one task. This is a
simplification of reality. In organizations, relationships typically involve multiple actors. Consider local refuse collec-
tion: while some large cities singly own refuse collection firms, many refuse collection organizations in Europe are
owned inter-municipally, that is, by multiple municipalities, or by public–private partnerships (Dijkgraaf and Gradus
2007; Sørensen 2007; Da Cruz and Marques 2012; Garrone et al. 2013; Bel et al. 2014; Blåka 2017; Giacomini et al.
2018; Soukopová and Vaceková 2018; Voorn, Van Genugten et al. 2018; Gradus and Budding 2018). In the United
States, inter-municipal contracting is more frequent (Warner and Hebdon 2001; Marvel and Marvel 2008; Hefetz
et al. 2012; Bel and Warner 2015). For other types of joint service delivery, such as firms with dispersed ownership,
parliaments and agencies, the dyadic model is similarly inaccurate.
Making the dyadic model more inaccurate is the observation that principals’interests frequently diverge. In
refuse collection organizations owned by multiple municipalities, interests between municipalities diverge in pick-up
frequency, pick-up times, attitude towards recycling, pricing strategies, and others (Van Genugten 2008). In inter-
municipal theatres, interests between municipalities diverge in the prime targeted demographic, focus on local or
national culture, types of cultural programmes offered, or focus on tourism. Parliaments, agencies, public–private
partnerships, and private firms with dispersed ownership face similar diverging interests among stakeholders.
Crucially, since there is asymmetric information between the principals, where principals are not necessarily aware of
each other’s behaviour, this creates a collective action problem for governance.
VOORN ET AL.673

Once multiple principals are introduced, we can no longer presume that it is in individual principals’best interest
to steer or monitor the agent. Worse yet, individual principals can lobby the agent to pursue their interests in lieu of
those of other principals.
3.2 |Formalization
Consider that αis the extent to which the agent acts in the principals’interest in a dyadic principal–agent model, and
c(α)represents the costs of getting the agent to act that way. Suppose, moreover, that in a non-dyadic model, β
i
−β
j
is the extent to which an agent sides with principal iover principal j, where c(β
i
)represents the costs of getting the
agent to side with principal iover principal j. This is illustrated in Figure 1.
In the dyadic model, policy to maximize the principal’s interest is straightforward to calculate. There are no lob-
bying costs c(β
i
), so monitoring should take place to the extent that α0<c(α)0, that is, to the point that the marginal
costs of increasing αexceed the marginal increase of α. In a non-dyadic model, however, outcomes are less positive.
Depending on the extent to which principals can observe αand other’sc(α), the possibility of duplication and free-
riding exists, which increases c(α)’and thus decreases α. (See also Varian 1989.)
An additional problem for overall welfare are lobbying costs β. In a two-principal model, principal imaximizes
expected utility U
i
:
Uiβi
ðÞ=αi+αj+βi
−βj
−cαðÞ−cβi
ðÞ
Uiβi
ðÞ=βi
0
−c0βi
ðÞ=0
βi
0=c
0βi
ðÞ
Lobbying should occur to the extent that β
i
0<c
0(β
i
). Since this has the outcome that total lobbying is likely non-
zero and lobbying provides no benefit for total welfare W=U
i
+U
j
, the model suggests that there will be lobbying
costs and that these will constitute inefficiencies. Since these inefficiencies exist in the non-dyadic principal–agent
relationship, but do not exist in the dyadic relationship, the implication is that from an agency cost perspective,
principal–agent relationships should be kept as dyadic as possible.
FIGURE 1 The model visualized
674 VOORN ET AL.

3.3 |A collective action explanation and hypotheses
To simplify the model in collective action terms, consider Table 1. It is unclear whether individual principals benefit
from steering when another principal may also steer, and likewise for monitoring. Still, we can make two observa-
tions. First, symmetric outcomes are inefficient: when all principals steer, they incur the costs of duplicate steering;
when none steer, the agent is autonomous. Second, the asymmetric outcome (one of the principals steers) leaves the
controlling principal better off than the non-controlling principal, introducing inequity. This is the multiple principal
problem in the absence of organization, and demonstrates the drawbacks of joint service delivery.
We can infer four hypotheses from this framework. First, the framework suggests that multiplicity in the responsibil-
ity to steer and monitor reduces steering and monitoring overall (H1). This follows the fact that municipalities have
incentives to individually free-ride in steering and monitoring. Second, multiplicity in the responsibility to steer and moni-
tor leads to inequity between principals and may induce lobbying of the agent (H2). Principals with greater bargaining
power may find their interests satisfied more than principals with lesser bargaining power. Third, conflict between princi-
pals and weaker steering and monitoring increase the agent’s autonomy (H3). In the absence of clear directives, the
agent has more freedom to choose its paths. Finally, this all increases inefficiencies under joint service delivery (H4).
4|EVIDENCE FROM THE LITERATURE
To test this framework and explore these hypotheses in a wide variety of settings, we conduct an exploratory review
of the literature on joint service delivery. However, as most organizations have multiple owners, the majority of
research into any type of organization describes outcomes of multiplicity of principals. This makes the literature
extensive, and a systematic review unfeasible. We opt instead to explore the literature (and indirectly the framework)
through a scoping study. Scoping studies are often used as an alternative to systematic literature reviews when the
latter are not feasible (Arksey and O’Malley 2005), because fields are broad in scope or terminologies are not yet set-
tled (Levac et al. 2010), as is the case here. Our explorative study is necessarily limited; it serves not as hard proof of
our hypotheses but as exploratory evidence for our framework.
We start from the literature on the multiple principal problem we are aware of (Miller 2005; Garrone et al. 2013; Van
Thiel 2016). We scanned all the relevant references from these studies for mentions of multiplicity of principals, including
them in a database when mentions were found. We repeated this step until we found no further articles. While this
approach is not all-encompassing, a more systematic approach mightyieldfewerimportantstudies, being more contingent
on terminology. Our approach yields 26 empirical and theoretical articles across business and management, economics,
political science, and public administration, using six different terms to describe the phenomenon (see Table 2).
4.1 |Summary of study backgrounds
Academics have conducted research into the multiple principal problem in five broad clusters. In political science,
study of the multiple principal problem is most prevalent in research on the politics–bureaucracy divide. Academics
here utilize the idea of multiple principals to understand power balances between the executive and legislative
branches of government and to reflect on the autonomy of agencies vis-à-vis the government (Miller 2005). Second,
TABLE 1 Pay-off schemes for steering or monitoring under multiple principals
Principal B
Principal A
Steer monitor the agent Do not steer monitor the agent
Steer monitor the agent Costly for A, Costly for B
Agent follows A and B, or own course
when A & B disagree
Costly for A, Not costly for B
Agent follows A
Do not steer monitor the agent Not costly for A, Costly for B
Agent follows B
Not costly for A, Not costly for B
Agent follows own course
VOORN ET AL.675

TABLE 2 Literature on the multiple principal problem
Reference Term Application Key theories Hypothesis
Bernheim and
Whinston (1986)
Common agency N/A (Model) If cooperation is not achieved, common agency
is probably inefficient.
1–4
Da Cruz and
Marques (2012)
Serving two
masters
Public–private
partnerships
When principals diverge in interests, formal
contracts often cause problems.
4
Dixit (2002) Multiple principals Tax agencies Accountability is easily violated under multiple
principals.
1
Dixit et al. (1997) Common agency N/A (Model) Common agency induces lobbying efforts by
the individual principals that reduce the
overall size of the economic pie.
2, 3, 4
Estache and
Martimort (1999)
Multi-principal Public sector Coordination problems between multiple
principals lead to inefficiency.
1, 4
Gailmard (2009) Multiple principals N/A (Model) There is a collective action problem in
monitoring among multiple principals.
1, 4
Garrone et al. (2013) Multiple principals Utilities Managers gain a lot of discretion from the
multi-principal nature of multi-utilities.
3, 4
Hammond and
Knott (1996)
Multiple principals Agencies Organizations gain autonomy from multiple
principals if their interests conflict.
2, 3
Khalil et al. (2007) Common agency N/A (Model) There is a collective action problem in
monitoring among multiple principals.
1, 4
Koppell (2005) Multiple
accountabilities
Agency Having to balance the interests of multiple
principals can lead to organizational failure.
4
Lin and Chuang
(2011)
Principal–principal Firms Conflicts between multiple principals have
empirically verifiable costs.
4
Martimort (1992) Multi-principals N/A (Model) The more the interests of multiple principals
diverge, the more welfare is lost.
1
Miller (2005) Multiple principals N/A (Theory) Summary of the political research into multiple
principals: organizations gain autonomy from
multiple principals if their interests conflict.
3
Moe (1984) Multiple principals Agencies Organizations gain autonomy from multiple
principals if their interests conflict.
2, 3
Moe (1987) Multiple principals Agencies Organizations gain autonomy from multiple
principals if their interests conflict.
2, 3
Moe (2005) Multiple principals N/A (Theory) Power between principals affects the
allegiance of agents.
2
Schillemans and
Bovens (2015)
Multiple
accountabilities
N/A (Theory) There are seven concerns for accountability
under multiple principals: higher transaction
costs, conflicting expectations,
accountability confusion, negativism, loss of
control, blame games, and symbolic
accountability.
1, 4
Sørensen (2007) Multiple principals Inter-municipal
cooperates
There is a costly collective action problem in
monitoring under multiple principals.
1,4
Su et al. (2007) Principal–principal Firms Goal incongruence causes problems under
multiple principals.
4
Van Thiel (2016) Multiple principals Quangos Multiplicity of principals can create conflicts. 1,4
Van Thiel and
Verhof (2012)
Plural principals Agencies Multiplicity of principals allows opportunistic
behaviour for both principals and agent, and
increases transaction costs.
1,4
Ward and
Filatotchev (2010)
Principal–principal Mutual funds
and stocks
There is evidence of the existence of greater
multiple principal problems in mutual funds
than stocks due to the lesser multiplicity in
shareholders it creates.
4
676 VOORN ET AL.

in business, researchers use the idea of multiple principals to understand the performance of firms where share-
holders disagree on objectives (Young et al. 2002; Su et al. 2007; Ward and Filatotchev 2010; Lin and Chuang 2011),
utilizing the term principal–principal conflict. Third, theoretical economists focus on individual collective action prob-
lems that multiple principals bring, naming it common agency (Bernheim and Whinston 1986; Martimort 1992; Dixit
et al. 1997; Khalil et al. 2007; Gailmard 2009). Fourth, the accountability literature considers accountability problems
that multiplicity of stakeholders can bring (Koppell 2005; Schillemans and Bovens 2015), coining it the multiple
accountability problem. Finally, a body of public administration research uses the idea of multiple principals for theo-
rizing about inter-municipal cooperation, shared services, public–private partnerships, and agencies (Sørensen 2007;
Da Cruz and Marques 2012; Van Thiel and Verhof 2012; Garrone et al. 2013). Some of these research clusters
inter-cite in some studies, and particularly the theoretical economics stream seems well cited by the other streams,
but primarily the different domains of research bring their own theory, leaving the literature somewhat unintegrated.
4.2 |Friction between principals, free-riding and duplication in steering and monitoring
Our first hypothesis predicts that we should observe free-riding and duplication in governance. The steering problem
has received the most attention. Theoretical models by Bernheim and Whinston (1986), Dixit (2002), Martimort
(1992), and Stole (1997) emphasize problems in building incentive schemes for agents when principals’objectives
diverge and when there is a lack of coordination. Literatures outside economics discuss the steering problem less in
terms of incentives, but more in terms of directive ambiguity. The accountability literature emphasizes how multiplic-
ity of principals can lead to confusion among management and employees, blame shifting and lack of real account-
ability (Schillemans and Bovens 2015). Next, in the business and finance literature, Young et al. (2002) emphasize the
problem that goal incongruence can lead to conflict among multiple principals. This problem is also highlighted in the
public administration literature by Estache and Martimort (1999) and Van Thiel (2016), who consider this to be a
problem for public sector management generally.
The literature also discusses the monitoring problem. In the economic literature, theoretical models emphasize
the possibility of monitoring duplicity when principals do not coordinate (Khalil et al. 2007). Conversely, Gailmard
(2009) emphasizes the possibility of free-riding in monitoring, leaving agents insufficiently checked by the principals.
The empirical literature also discusses the possibility of duplicity or free-riding in monitoring procedures to explain
their empirical findings, such as Young et al. (2002) in business and Sørensen (2007) in public administration. Some
articles discuss problems in steering and monitoring together as ‘transaction costs’(Estache and Martimort 1999;
Van Thiel and Verhof 2012; Schillemans and Bovens 2015).
4.3 |Lobbying of the agent by principals
Our second hypothesis is that we should observe lobbying of the agent by principals. We find evidence for this pri-
marily in economic modelling and in empirical work on the politics–bureaucracy interplay. First, the economic models
TABLE 2 (Continued)
Reference Term Application Key theories Hypothesis
Whitford (2005) Multiple principals Agencies Organizations gain autonomy from multiple
principals if their interests conflict.
2, 3
Wood and
Waterman (1991)
Multiple principals Agencies Organizations gain autonomy from multiple
principals if their interests conflict.
2, 3
Worsham and
Gatrell (2005)
Multiple principals Agencies Organizations gain autonomy from multiple
principals if their interests conflict.
2, 3
Young et al. (2002) Principal–principal Firms (Theory) Goal incongruence leads to principal–principal
conflicts and increased monitoring costs,
which reduce efficiency.
1, 4
VOORN ET AL.677

of Bernheim and Whinston (1986) and Dixit et al. (1997) show that principals face a collective action problem in how
they get agents to pursue their ends: when there are multiple principals, individual principals have incentives to lobby
agents to pursue their individual objectives. Since all principals face such incentives, lobbying begets a prisoners’
dilemma. The empirical existence of the lobbying of agents is found in the extensive literature on agencies (Moe
1984, 1987; Wood and Waterman 1991; Hammond and Knott 1996; Whitford 2005; Worsham and Gatrell 2005),
but is not addressed much elsewhere. Moe (2005) summarizes the political science literature on public service deliv-
ery under multiple principals in stating that when principals have heterogeneous preferences, information asymme-
tries between principals are created, and the multiprincipal nature of government can start to revolve more around
individual principals’power and less around cooperation.
4.4 |Increased autonomy for agents
Our third hypothesis is that we should observe increased autonomy for agents. We find evidence for this again from
economic modelling, the literature on the politics–bureaucracy division and to a lesser extent from public administra-
tion research. The models of Bernheim and Whinston (1986) and Dixit et al. (1997) emphasize that lobbying efforts
by principals create autonomy for agents. Miller (2005) provides an overview of articles that focus on the politics–
bureaucracy interplay and summarizes that the common finding in these articles is that inter-principal conflict can
extend the freedom for agents to pursue autonomous goals. For instance, when Congress and the White House pres-
sure agencies to pursue conflicting objectives, the agencies gain a lot of room for manoeuvre, benevolently or oppor-
tunistically, capable of cooperating with either principal on a case-by-case basis, able to play out both branches of
government against each other. This autonomy of agencies is emphasized in the extensive literature on agencies with
multiple principals (Moe 1984, 1987; Wood and Waterman 1991; Hammond and Knott 1996; Whitford 2005; Wor-
sham and Gatrell 2005). Garrone et al. (2013) find such autonomy also in their study of Italian multi-utilities, finding
that multiplicity of owners often leads to substantial managerial autonomy. We find no literature in business and
finance comparing the autonomy of boards of directors under one principal with autonomy under multiple principals.
4.5 |Inefficiencies under multiple principals
Given that we observe free-riding and duplication in monitoring, lobbying by principals, and increased autonomy for
agents, the framework predicts that we should observe inefficiencies under multiple principals (H4). We find evi-
dence for this in both theoretical models and empirical studies. First, the models of Bernheim and Whinston (1986)
and Dixit et al. (1997) point out that lobbying increases agency costs and brings a larger wealth transfer from princi-
pals to agent than would occur under one principal. Models focusing on monitoring emphasize the welfare loss that
comes from monitoring duplicity when multiple principals do not coordinate (Khalil et al. 2007), and increased agency
costs that follow insufficient monitoring (Gailmard 2009). Empirical studies also find inefficiencies. Garrone et al.
(2013) emphasize the coordination costs of increased managerial autonomy. Sørensen (2007) confirms costs of col-
lective action problems in monitoring in inter-municipal cooperation. Other empirical tests find inefficiency related to
multiple principals, attributing them to governance problems (Koppell 2005; Su et al. 2007; Ward and Filatotchev
2010; Lin and Chuang 2011; Da Cruz and Marques 2012). Multiple studies emphasize that transaction costs are
higher under joint service delivery (Estache and Martimort 1999; Young et al. 2002; Van Thiel and Verhof 2012;
Schillemans and Bovens 2015; Van Thiel 2016). While the literature on political transaction costs does not specify
problems under multiple principals, it has emphasized accountability problems associated with autonomy (cf. Warner
and Hefetz 2002; Tavares and Camões 2007; Carr et al. 2009; Rodrigues et al. 2012; Overman et al. 2015).
4.6 |Summary of findings
Notwithstanding the multiplicity of terms and limited synthesis of the different fields, findings in the literature fit the
framework presented in section 3. Complexities in steering and monitoring are key drawbacks under multiple
678 VOORN ET AL.

principals; without coordination between principals, we observe friction between principals and free-riding and dupli-
cation in monitoring (H1), lobbying of agents by principals (H2), and increased autonomy for agents (H3), leading to
inefficiencies (H4). However, coordination is not easy to achieve. Diverging objectives can bring a prisoner’s dilemma,
as principals have individual incentives to advance their own objectives in lieu of the joint objective. Inefficiency and
a power transfer to the agent results, and accountability is diminished, particularly in public sector organizations built
around cooperation of principals. We predict that this problem exists in all types of joint service delivery organiza-
tions, including inter-municipal service organizations, parliaments and agencies, public–private partnerships, and
private firms with dispersed ownership.
5|INSTITUTIONAL RESPONSES
The typical response to the multiple principal problem—if any—is to counter it with institutions (see e.g., Tavares and
Feiock 2017 for a review of regional governance options). Yet direct institutional solutions are rarely considered in
the articles found in section 4 (Dixit 2002 and Waterman and Meier 1998 are welcome exceptions). In this section,
we consider findings in the field of inter-municipal service delivery, link them to the principal–agent framework, and
use the combination of literature and theory to propose a research agenda into institutional solutions to the multiple
principal problem. We consider four typical institutions used for inter-municipal service delivery in practice (informal
coordination, formalized coordination through contracts, delegation, and centralization) and their drawbacks from
the perspective of solving the multiple principal problem.
2
5.1 |Informal coordination
One response to the multiple principal problem in joint service delivery is informal coordination, common at the local
level in the United States (Feiock 2009). If governance tasks can be shared or divided among municipalities, the multi-
ple principal problem may disappear. However, informal coordination does not prevent the prisoner’s dilemma that
the economic literature forewarns. Individual principals continue to have incentives to defect from common agree-
ments (Dixit et al. 1997). Consider our refuse collection example. Individual municipalities may lobby the director to
pursue their objectives regardless of informal agreements. Next, individual municipalities may focus on auditing only
objectives important to them; when they uncover problems, they have incentives not to share these with their part-
ners. For instance, a recycling-concerned municipality is less likely to report higher costs of recycling policies, while
municipal principals opposed to recycling are less likely to report positive outcomes. Similarly, for inter-municipal the-
atres, tourism-concerned municipalities are less likely to report high costs of international advertising, while munici-
palities concerned with cultural education are less likely to report high costs of that programme. Table 3 illustrates
the prisoner’s dilemma that exists here.
Thus, for short-run cooperation, principals have incentives to renege on informal agreements. When cooperation
becomes lengthier, there are increasing incentives to cooperate and build trust between the parties. In the public sec-
tor, electoral cycles may stand in the way of such trust-building, and voluntary agreements become more difficult to
safeguard when the number of parties involved gets larger. However, if those problems can be avoided, informal
coordination may work.
2
Competition can also be an indirect solution to the problem of inefficiency under multiple principals (see Dixit 2002). Over time, the
presence of competition forces principals to maximize the efficiency of their management set-up, or else lose ground to more effi-
cient competitors. Indeed, there are known cases where private sector organizations are introduced to compete with public sector
organizations to allow such innovation to occur (Bognetti and Robotti, 2007; Albalate et al. 2012). However, most of the time, com-
petition is notably absent in the public sector. In cases where there is ex-ante competition (for instance through competitive tender-
ing) there is evidence of ex-post haggling and entrenchment of such organizations once they have won the first bid (Williamson 1985;
Dyer and Chu 2003; Marques and Berg 2011). Thus, problematically for the public sector, outside competitive pressure is usu-
ally low.
VOORN ET AL.679

5.2 |Formal coordination
Formalizing coordination through contracts is a means to solve the prisoner’s dilemma inherent to informal coordina-
tion, as contracts disincentivize defecting from joint agreements. For inter-municipal service organizations, if the munic-
ipalities jointly draft a contract for the director containing directives and incentives, it may inhibit them from lobbying
the director, safeguarding joint agreements. However, this solution has limitations too. When principals embed objec-
tives in extensive contracts, this may inspire managerial performance only to the letter of the contract (Weber and
Mayer 2011). Second, while lobbying may be limited to provisions in the contract, it continues to exist and may inten-
sify for topics outside of the contract. Third, there are costs associated with drafting contracts and verifying adherence
to them, which reduce efficiency; to account for changing circumstances, contracts might need to be perennially
redrawn, and such continued investment leads to ex-post haggling (Williamson 1985; Dyer and Chu 2003; Whinston
2003), placing the agent in a continually stronger bargaining position (Marques and Berg 2011). Finally, individual princi-
pals, especially in the public sector, may fear that joint contracts undermine their autonomy, reducing their short-term
control over the service. Formal coordination can help mitigate the multiple principal problem, but is no panacea.
5.3 |Delegation to one principal
The third potential solution, delegation to one principal, is also limited. In this scenario, multiple principals essentially
contract out the governance to one among them. An example of this is inter-municipal contracting, where one munic-
ipality (typically the largest) assumes responsibility for the service delivery (Bel and Warner 2015). Both this scenario
and the formal coordination scenario involve negotiations between principals about contract terms, but compared to
formal coordination, power is transferred between principals, as the controlling party can now dictate terms not
included in the contract. Moreover, the controlling party will have individual interests to monitor primarily the objec-
tives it privately considers important. Even if contracts are salient, we know that in such a scenario, the agent is likely
to focus his attention on the monitored, rather than the directed, task (Bevan and Hood 2006), allowing the monitor-
ing party to essentially steer the agent’s objectives.
This so-called ‘benefit from control’is well understood in the finance literature. Corporate governance scholars
have found that for monitoring in private firms, the straightforward solution of appointing one of the shareholders is
ill-advised from a performance perspective (La Porta et al. 2000; Yeh and Woidtke 2005; Kim et al. 2007). Monitoring
by individual shareholders gives them greater access to information, encouraging them not to share important details
about the firm with their colleague shareholders to gain an advantage in capital markets. Especially when a larger
shareholder is appointed for monitoring, this can lead to entrenchment of their position on boards and exclude
minority shareholders from effective corporate control, to the detriment of performance (Yeh and Woidtke 2005).
5.4 |Centralization
The last alternative to inter-municipal cooperation, one also frequently employed, is centralization. For our inter-
municipal service organization, centralization would mean taking service delivery out of the hands of local authorities
and making it a regional or national task. Centralization can be a solution to the multiple principal problem, reducing
the service delivery to a single principal, but it is a limited solution. First, a problem of centralization is its involuntary
TABLE 3 The prisoner’s dilemma in informal coordination
Principal B
Principal A
Cooperates Defects
Cooperates Mutually beneficial outcome. Costly for A. B gains over mutually beneficial
outcome.
Defects Costly for B. A gains over mutually beneficial
outcome.
Costly for A and B. Both parties lose.
680 VOORN ET AL.

nature (removing municipalities’ability to opt out). Second, there is no guarantee that the centralized service would
be tailored to local preferences. Third, centralized organizations are easier to lobby, and losses can arise from acts
seeking to influence the organization and its subsequent need to respond (Milgrom and Roberts 1992, p. 58). For
local service delivery, the literature has argued that for these reasons centralization may not be a desirable alternative
(see Tavares and Feiock 2017). Recent reviews of amalgamation outcomes by Tavares (2018) and Swianiewicz
(2018) show that scale economies are only captured for a small subset of amalgamations. Thus, while centralization is
a potential solution to the multiple principal problem, it is often an inefficient solution.
6|RESEARCH AGENDA: AN ELECTORAL SOLUTION?
Previously we turned to evidence from finance to argue against delegation to a single principal. Indeed, it has become
best practice in private firms to select outside directors or a variety of stakeholders (Hill and Jones 1992), and not an
individual shareholder with strong private incentives, for monitoring. We find, moreover, that shareholders’meetings
typically elect these outside directors or stakeholders.
Such elections to determine control over service delivery can be a solution to the multiple principal problem. If
governance can be delegated to one party whose interest approximately represents the joint interest of the princi-
pals, the multiple principal problem is reduced. Since median voter theorem tells us that the outcomes of elections
typically represent the interest of the median voter (see Downs 1957), using such a procedure to select the govern-
ing party for joint service delivery is ceteris paribus most likely to represent the ‘median’joint objective of the princi-
pals, while avoiding problems related to principal multiplicity. There are caveats: this does not work for dual
principals, principals may not always vote according to their interests, and Arrow’s Impossibility Theorem implies that
it is difficult to devise electoral systems that perfectly aggregate social preferences under specific sets of preferences
(Arrow 1963). Moreover, minority principals need to be involved and protected in this process.
There is preliminary evidence also from the literature on inter-municipal cooperation that delegation of this kind
works in practice. For inter-municipal joint service delivery, we find that there is a difference between countries in
the success in dealing with the multiple principal problem. As Bel and Warner (2015) argue in their review of inter-
municipal cooperation, inter-municipal cooperation seems to show better performance when its management is dele-
gated to a single authority, as can happen in Spain, than when municipalities are directly on the board, as occurs in
Italy (Garrone et al. 2013), the Netherlands (Voorn, Van Genugten et al. 2018), and Norway (Sørensen 2007; Tor-
steinsen and Van Genugten 2016). While both models create an interface (middle tier) between principals (municipal-
ities) and agent (service organization), the middle tier in the case of Italy, the Netherlands, and Norway still has
multiple principals, while in the Spanish case the middle tier can be a single separate government (Bel et al. 2014; Bel
and Warner 2015), where elections may mitigate the possibility of lobbying. Consequently, the Spanish model solves
collective action problems, whereas the Dutch, Italian, and Norwegian models do not (interestingly, in Italy, municipal
unions have been developed that share characteristics of such separate governments; Ferraresi et al. 2018). Figure 2
shows the difference between the two models.
Inter-municipal cooperation in Spain works through comarcas (counties) and mancomunidades (associations of
municipalities). Within those institutions, elections take place to delegate the daily governance of service delivery to
a single actor. In comarcas, members of the comarca elect a consejo comarcal (the comarca government) to be directly
in charge of daily governance, and in mancomunidades, members elect not a government but a president. This kind of
delegation to a single actor through a democratic process does not occur in countries like the Netherlands and Nor-
way, where such elections either do not take place or are not formalized (Torsteinsen and Van Genugten 2016;
Voorn, Van Genugten et al. 2018). The unitary governance in the Spanish model solves collective action problems in
steering and monitoring, and the good outcomes of the Spanish approach described by Bel and Warner (2015) lend
provisional corroboration to the idea that the Spanish model mitigates the multiple principal problem intrinsic to
inter-municipal cooperation better than other countries’models do. However, more research is necessary.
VOORN ET AL.681

7|DISCUSSION, CONCLUSION AND RECOMMENDATIONS
The multiple principal problem that organizations face when they must balance the (competing) interests of multiple
stakeholders is severe and constitutes one of the primary obstacles to organizational effectiveness in joint service
delivery. We know little about how organizations approach the multiple principal problem in practice, or how they
should in theory.
In this article, we have extended a framework based on principal–agent theory to multiple principals to under-
stand the issues that multiple principals can bring for joint service delivery in the public sector. Next, we found that a
broad literature corroborated the principal–agent framework. We found support for four key hypotheses drawn from
this framework: in joint service delivery, we often observe (i) free-riding and duplication in monitoring, (ii) lobbying by
principals, and (iii) increased autonomy for agents, (iv) leading to inefficiencies. We further found that coordination is
difficult to achieve, as diverging objectives between principals bring a prisoner’s dilemma, where principals have indi-
vidual incentives to advance their own objectives instead of the common good. Altogether, the multiple principal
problem can lead to large inefficiencies and powerful agents if not properly dealt with.
We also find that there has been little research describing and testing institutional solutions to the multiple prin-
cipal problem. We combined our framework with literature on inter-municipal cooperation to tentatively suggest that
an interface approach, in which principals delegate governance to an elected party whose objectives align most with
the common good, could be a solution to the multiple principal problem under joint service delivery. Alternative coor-
dination mechanisms, such as informal networks, formal contracts, centralization, and delegation to principals with
individual interests, might be less effective. We encourage further research to test different organizational models in
practice, as we still lack empirical data describing and comparing different types of organization to deal with multiple
principals.
While we have found substantial evidence of the existence of the multiple principal problem, not all organiza-
tions will suffer from principal–agent problems. We do not preclude the existence of stewardship and trust both
between principals and between principals and agents in organizations, which help protect against the multiple prin-
cipal problem. If we presume stewardship among the principals and agents, the multiple principal problem disappears.
Still, we have found substantial evidence of the existence and severity of the multiple principal problem, and we
encourage future research into possible solutions to contribute to more effective joint service delivery in the public
sector.
FIGURE 2 The electoral model compared to the typical model of inter-municipal cooperation
682 VOORN ET AL.

ORCID
Bart Voorn https://orcid.org/0000-0002-0472-2663
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How to cite this article: Voorn B, van Genugten M, van Thiel S. Multiple principals, multiple problems: Impli-
cations for effective governance and a research agenda for joint service delivery. Public Admin. 2019;97:
671–685. https://doi.org/10.1111/padm.12587
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