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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.
[1] [2] [6] Bureaucratic drift is often treated as a principal–agent problem, with Congress and the Presidency acting as principals and bureaucracy acting as the agent. The government seeks to control bureaucratic drift in a number of ways, most notably congressional oversight and procedural controls. [1] [2] [3] [7]
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 ...
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 principal agent problem; In this situation the agent is the government and the principal is the population that elected them. When the government is elected they now do not just represent the group of people that elected them but everyone who voted.
Information asymmetries are studied in the context of principal–agent problems where they are a major cause of misinforming and is essential in every communication process. [10] Information asymmetry is in contrast to perfect information, which is a key assumption in neo-classical economics. [11]
This is known as the "principal-agent problem," where the incentives of the principal (e.g., the government or a company) do not align with the incentives of the agent (e.g., individuals or employees).