Definitions for "Principal-agent problem"
The problem that arises because managers or workers may pursue their own objectives, even though this reduces the profits of the owners of the firm. The managers or workers are agents who work for the owners, who are the principals.
Occurs when the agent's objectives differ from those of the principal and the agent can pursue actions.
any situation in which one party (the principal) needs to delegate actions to another party (the agent), and thus wishes to provide the agent with incentives to work hard and make decisions about risk that reflects the interests of the principal