The authors describe the pharmaceutical utilization system and present the conceptual framework for agency theory. They then apply agency theory to the selection of pharmaceuticals and the role of drug formularies in drug selection. The use of drug formularies can increase the goal conflict and uncertainty related to the selection of drug products. The authors address public policy and research directions to suggest ways of reducing the level of goal conflict and uncertainty associated with drug selection. Recognition of agency relationships and the environment surrounding agency relationships appear to be important for the development and analysis of future policy regarding selection decisions pertaining to pharmaceuticals.