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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 ...
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 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.
Secondly, the agent may be risk-neutral but wealth-constrained and so the agent cannot make a payment to the principal and there is a trade-off between providing incentives and minimizing the agent's limited-liability rent. [47] Among the early contributors to the contract-theoretic literature on moral hazard were Oliver Hart and Sanford J ...
A key concept of Rational Choice Institutionalism is the principal-agent model borrowed from Neo-classical economics. This model is used to explain why some institutions appear to be inefficient, suboptimal, dysfunctional or generally go against the intentions of the actors who created the institution.