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The principal–agent problem typically arises where the two parties have different interests and asymmetric information (the agent having more information), such that the principal cannot directly ensure that the agent is always acting in the principal's best interest, particularly when activities that are useful to the principal are costly to ...
[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]
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 ...
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 ...
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.
In this case, the agent's type is his or her health status, which is privately known by the agent. Another prominent example is public procurement contracting: The government agency (the principal) does not know the private firm's cost. In this case, the private firm is the agent and the agent's type is the cost level. [17]
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.