What Is the Principle-Agent Relationship? Using Examples from the Public Sector Explain Why Inefficiencies May (or May Not) Arise Because of a Principle-Agent Relationship. Is There a Way to Resolve Any Problems?

The principle of _______________ means that each person should know to whom they report, and that managers should have the right to give orders and expect others to follow.

Economists are always eager to eliminate every conduct which will lead to a non-competitive market. The models for economic analysis

There are many components that drive, maintain and contribute to the efficiency of healthcare. One major driving force is the Institute of Medicine (IOM), which is an organization that has helped to bridge the numerous gaps between health professionals and patients. The IOM has helped initiate a standard of quality healthcare by setting standards relating to managing the privacy of medical records, control cost and creating a means for nurses to have a voice through continued education by obtaining advanced degrees. However, although IMO has given society the research necessary to guide healthcare decision-making, it has also allowed for government officials to have a strong hold on healthcare decision making which takes away from physician

1A. Market failure is a situation in which the allocation of goods and services is not efficient. In any given market, the quantity of a product demanded by consumers does not equate to the quantity supplied by suppliers. This is a direct result of a lack of certain economically ideal factors, which prevents equilibrium.

Throughout their long history, business ethicists have been aware that theorizations intending to address societal goals can be rendered ineffectual when economic goals are prioritized [Arnold (2010); Marens (2010,2007); Worden (2009); Karnani (2007); Wry (2009); Hartman et al. (2003); Freeman (2000); Boatright (1998)].

This is achieved through improved public service delivery and more informed policy design. In many countries, especially developing ones, the government fails to deliver key essential services to its citizens due to problems such as: misallocation of resources, leakages or corruption, weak incentives or a lack of articulated demand (William, 2002). Similarly, governments often formulate policies in a discretionary and non-transparent manner that goes against the interests and actual priorities of the poor, these problems are perpetuated because the three key groups of actors in the public policy and service delivery chain-policy makers, service providers and citizens have different (sometimes conflicting) goals and incentives, compounded by information asymmetries and lack of communication (William,

Buckley and Casson proposed that knowledge is a public good and hence can be transferred easily across the world. The basic assumption about this is that they consider everybody should have equal knowledge. They also stressed on the point that information is important as well and the cost related with information is a handicap for the firm.

Governmental regulation and “red tape” is often the target of the people who see an ineffective government and a bloated public administration. Red tape is the complex process which administrators much go through to solve a problem or conduct normal business. Regulations are additional requirements for businesses and the people which may have the potential to harm the economy. Red tape and regulations are the problem with this nations bureaucracy. To demonstrate this problem, two models of bureaucratic dysfunction will be explored. This examination will be followed by a discussion of the bureaucratic problem.

When discussing the concept of Market Failure and the implications for Public Policy, the correlation, between the two is directly related to government intervention on market efficiency. Market Failure is discussed in the context of Pareto efficiency in the Free Market. Certain conditions must be met or Market Failures are inevitable and the government must intervene to correct the market. The first fundamental theorem of welfare economics asserts that under certain conditions which makes markets not Pareto efficient results in Market Failure (Stiglitz, 2000, p. 77). The conditions of market failure results when marginal cost (MC) does not equal marginal benefit (MB) and neither equals price (P), to reach equilibrium MC=MB=P and the market is Pareto efficient. The conditions under which there is not Pareto efficiency in the market and results in Market Failure are; failure of competition, public goods, externalities, incomplete markets, information failure, unemployment, inflation and disequilibrium (Aikins, 2015). If any of these conditions exist in the market, it provides the justification for government to address the failures through policies designed to reach Pareto efficiency. Pareto efficiency or Pareto optimal is defined as, to have resource allocation that have the property that no one can be made better off without someone being made worse off. Pareto efficiency in free markets incorporates involvement where Government is expected to protect citizens and

Incentives – this principle is simple to understand, which involves enticing people to do something you want them to do by giving them something they view as worth the trade-off or difference in cost of making one decision over another. (Mankiw, 2013)

As the result, shareholders hire managers(agent) to run the business and act on the shareholder’s behalf. Since managers involved in the daily business, these is information asymmetries between shareholders and managers. Also, managers are likely to have different motives to principals. In shareholder’s point of view is maximum long-term shareholder wealth but the managers may be influenced by different factors such as financial rewards, labour market opportunities and relationships with third parties which are not directly relevant to principals. The management acts in their self-interests instead of acting in the shareholders’ best interests. Therefore, the agency problem arises because there is a conflict of interest between the management and the

Scrutinizing the literature regarding NPM depicts that there is an extensive research related to characteristics and application of research but less significant work is done in building the theoretical base of market-oriented reforms. The literature of NPM also refers to the works of Vigoda, Pollitt, Hood, Hughes, Ferlie, Kirkpatrick, Osborne and Gaebler.

This note considers the simplest possible organization: one boss (or “Principal”) and one worker (or “Agent”). One of the earliest applications of this Principal-Agent model was to sharecropping, where the landowner was the Principal and the tenant farmer the Agent, but in this course we will typically talk about more familiar organization structures. For example, we might consider a firm’s shareholders to be the Principal and the CEO to be the Agent. One can also enrich the model to analyze a chain of command (i.e., a Principal, a Supervisor, and an Agent), or one Principal and many Agents, or other steps towards a full-fledged organization tree. The central idea behind the Principal-Agent model is that the Principal is too busy to do a given job and so hires the Agent, but being too busy also means that the Principal cannot monitor the Agent perfectly. There are a number of ways that the Principal might then try to motivate the Agent: this note analyzes incentive contracts (similar to profit sharing or sharecropping); later notes discuss richer and more realistic models. Taken literally and alone, the basic Principal-Agent model may seem too abstract to be useful. But we begin with this model because it is an essential building block for many discussions throughout the course—concerning not only

Tutors will assign the following readings to students in each tutorial class. The class discussion will identify points under the 2 categories, (i) efficient delivery of hospital service and (ii) effective delivery of hospital care. Discuss the points raised and identify instances where (i) and (ii) complement each other, and where (i) and (ii) conflict, thereby undermining (i) or (ii).

Under the traditional economic understanding, it is always assumed that profit maximization is treated as the main goal or objective for businesses, subject to perfect knowledge, single entity and rational logic. However, as illustrated by the principal-agency problem, managers do not usually make rational decision entirely like owners who take company interest as their sole basis for their decisions. Past examples have shown that managers do take their own personal goals and satisfactions as consideration in their decision-making. In addition, information gathering is not always perfect as managers do make decision by relying solely on the implicit knowledge gained from past experiences, without referencing to the macro-economic