goals of the principals can be in conflict with the primary goals of the agents. The principals, for example, may desire a higher stock price, while the agents may seek increased personal wealth through higher management compensation. Thus, although the managers of a corpo ration have an obligation to the stockholders, agency theory says man agement self-interest will prevail, if left unchecked, and this will not necessarily be in the best interests of the stockholders. Similar to agency theory, the economic theory of regulation pre sumes the rational pursuit of self-interests in explaining government intervention in the marketplace. Beginning with Stigler (1971), this theory emphasizes that politicians (like any other agents) are self interested maximizers of personal wealth. More specifically, politicians seek to maintain and increase political power by supplying regulations in such a way as to meet the demands of their most influential constitu ents. Peltzman (1976) generalizes Stigler's theory and suggests that this self-interested regulatory behavior varies over business cycles. In short, Peltzman predicts that regulators tend to be more consumer-protecting in expansions and producer-protecting in recessions. While constituent pressures constrain the self-interested behavior of politicians, incentive plans and various controls are used to help align management's goals and stockholders' interests. Management's compensation, for example, might be determined at least in part by a formula tied to the corporation's reported earnings. But earnings