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The principal-agent problem in the public sector arises when there is a disconnect between politicians and public servants and their goals and interests. Other reasons that this occurs is because of political interference, bureaucratic resistance and public accountability.
A particular kind of a principal-agent problem is when the agent can compute the value of an item that belongs to the principal (e.g. an assessor can compute the value of the principal's car), and the principal wants to incentivize the agent to compute and report the true value. [30]
However, a principal–agent problem can occur when there is a conflict of interest between the agent and principal. If the agent has more information about his or her actions or intentions than the principal then the agent may have an incentive to act too riskily (from the viewpoint of the principal) if the interests of the agent and the ...
The multiple principal problem, also known as the common agency problem, the multiple accountabilities problem, or the problem of serving two masters, is an extension of the principal-agent problem that explains problems that can occur when one person or entity acts on behalf of multiple other persons or entities. [1]
An agency cost is an economic concept that refers to the costs associated with the relationship between a "principal" (an organization, person or group of persons), and an "agent". The agent is given powers to make decisions on behalf of the principal. However, the two parties may have different incentives and the agent generally has more ...
In microeconomics and contract theory, the first-order approach is a simplifying assumption used to solve models with a principal-agent problem. [1] It suggests that, instead of following the usual assumption that the agent will take an action that is utility-maximizing, the modeller use a weaker constraint, and looks only for actions which satisfy the first-order conditions of the agent's ...
The main driver of this reading helps explain why other surveys show Americans feel dour about their economic prospects. And it reveals the backward problem facing the Federal Reserve's interest ...
In modern contract theory, "adverse selection" characterizes principal-agent models in which an agent has private information before a contract is written. [ 23 ] [ 24 ] For example, a worker may know his effort costs (or a buyer may know his willingness-to-pay) before an employer (or a seller) makes a contract offer.