In political science and
economics, the principal-agent problem treats the difficulties that arise under conditions of incomplete and
asymmetric information when a
principal hires an
agent. Various mechanisms may be used to try to align the interests of the agent with those of the principal, such as
piece rates/
commissions,
profit sharing,
efficiency wages, the agent posting a bond, or fear of firing. The principal-agent problem is found in most employer/employee relationships, for example, when
stockholders hire top executives of
corporations. Numerous studies in political science have noted the problems inherent in the delegation of legislative authority to bureaucratic agencies. Especially since bureaucrats often have expertise that legislators and executives lack, laws and executive directives are open to bureaucratic interpretation, creating opportunities and incentives for the bureaucrat-as-agent to deviate from the preferences of the constitutional branches of government. Variance in the intensity of legislative oversight also serves to increase principal-agent problems in implementing legislative preferences.
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