A lucid explanation of the principle-agent theory is as follows: Whenever one individual depends on the action of another, an agency relationship arises. The individual taking the action is called the agent. The affected party is the principal. This means that the relationships investigated in the principal-agent theory are characterised by an asymmetrical distribution of information between the parties involved. The agent has more information than the principal. The principal assigns tasks and decision-making powers to the agent so that he does not have to perform these tasks himself. The agent’s actions therefore influence not only his own utility but also that of the principal. This approach aims to motivate the agent to act in his principal’s interest using a set of properly applied incentives. As the principal’s interests usually conflict with the agent’s, purposeful incentives have to be offered, e.g. performance-oriented payment for managers.
German: Prinzipal-Agent-Ansatz (PA-Ansatz) (630)
Source: SFO D15 2010 m. e. E., 24.04.2010
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