Theory Of The Principle Agent Problem

1412 WordsApr 26, 20156 Pages
In American politics, there are multiple examples of the phenomena known as the principle-agent problem. A principle-agent problem is when a person (the principal) hires another person (the agent) to perform a job that the principle cannot do themselves. However, the agent in these situations may go against the wishes of the principle for their own benefit, making the whole exchange a risk for the principle. In everyday life, an example of a principle-agent problem is when a person hires a mechanic. They hire a mechanic because they don’t have the knowledge, or the ability, to do the job. Unfortunately, the mechanic is aware of this, and may try to get more compensation by charging for more than is actually required. In the American political system, a specific example of the principle-agent is the relationship between the heads of the Central Intelligence Agency and the agents they employ. In an arrangement between the Central Intelligence Agency and an agent that they wish to hire, the CIA compensates the agent with the expectation that the agent will perform their required task, act covertly, and protect the United States of America. However, the agent may defect by giving other nations information that they deem is important, or acting in some other way that may compromise our country, so that the defecting agent could receive some sort of compensation. Although defectors are rather rare (as far as we know), when an agent does defect, it has serious consequences for

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