The principal-agent problem
The principal-agent problem
A principal-agent problem occurs when an agent acts in their own interest rather than in the interest of the principal they represent. In a public limited company, shareholders are the principals and managers are their agents.
Step-by-step lessons on CIE Intl A Level Economics 7.7.5 principal–agent problem arising from differing objectives of shareholders/owners and managers. Each one builds up to exam-style questions.