Principal Agent Problem

• [[go]] https://en.wikipedia.org/wiki/Principal%E2%80%93agent_problem pull
  • A type of [[moral hazard]] and [[coordination problem]] that arises when an entity cannot trust a delegate (the "agent") to act in their interest.
  • "Common examples of this relationship include corporate management (agent) and shareholders (principal), elected officials (agent) and citizens (principal), or brokers (agent) and markets (buyers and sellers, principals). Consider a legal client (the principal) wondering whether their lawyer (the agent) is recommending protracted legal proceedings because it is truly necessary for the client's well-being, or because it will generate income for the lawyer. In fact the problem can arise in almost any context where one party is being paid by another to do something where the agent has a small or nonexistent share in the outcome, whether in formal employment or a negotiated deal such as paying for household jobs or car repairs."
• Found in [[gwern]]'s [[terrorism is not effective]].