``Agency costs” when agents perform better than owners

This paper extends Jensen and Meckling's agency cost theory. A clockwise rotation of their budget constraint represents better performance by agents compared to owners and higher firm values. This extension incorporates Alchian and Demsetz's view of the firm, wherein firm values increase when managers are employed. It is then sub-optimal for owner-managers to directly expropriate non-pecuniary benefits through the firm as in Jensen and Meckling. It is instead Pareto optimal that owner-managers who seek to expropriate non-pecuniary benefits do so using the firm's higher value, and trading it for the non-pecuniary benefits they desire in the open market.