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. : 725, 741 Issues can also arise among different types of management.Ĭommon 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). : 725, 741 As shareholders are dis-incentived to intervene, there are fewer checks on management. Issues also arise when companies have an incentive to become increasingly deferential to management that have ownership stakes. This dilemma exists in circumstances where agents are motivated to act in their own best interests, which are contrary to those of their principals, and is an example of moral hazard. The principal–agent problem, in political science, supply chain management and economics (also known as agency dilemma or the agency problem) occurs when one person or entity (the " agent") is able to make decisions and/or take actions on behalf of, or that impact, another person or entity (the " principal").
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