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The Principal-Agent Problem
“Delegating a task also delegates information and room for judgment.”
01 / SUMMARY
In short
A principal-agent problem arises when one party asks another to act on its behalf but their goals or information do not fully align. Contracts, monitoring, and reputation seek alignment with costs and limits.
03 / SCENE
In the wild
Shareholders want durable value while managers rewarded for quarterly figures may favor a different horizon.
04 / LIMIT
The limit
It assumes neither fraud nor an immoral agent; incomplete measurement alone can create the difficulty.
FINAL NOTE
What remains
Identify what is delegated, what remains unseen, and which behavior the chosen metric rewards.