MODERN-DAY PROXY WARFARE: FROM AGENCY THEORY PERSPECTIVE.

Proxy warfare, in which one party uses a third party to achieve its own goals, are known for centuries, however, the conceptualization studies of proxy warfare are relatively new. Thereby, in this paper, we assess proxy warfare in terms of agency theory. According to agency theory, the owner of the company delegates their authority to another person (agent) to make decisions on their behalf. If there is information asymmetry between the parties or differentiation in the goals of the principal and the agent or they have different risk-sharing perceptions, agency problem exists. This study discloses that identical problems are common in proxy warfare. That is, if the principal and proxy have unmatching goals or desires accompanying information asymmetry and different risk perceptions, the principal may lose control of the proxy or the principal may exploit the proxy, likewise, the proxy may prefer a different way of action which is not compatible with the goals of the principal. However, this study shows that the remedies for agency theory's "moral hazard" and "adverse selection" problems might be used in proxy warfare problems by establishing outcome-based contracts and a strong knowledge structure between the parties of proxy warfare. [ABSTRACT FROM AUTHOR]