Principal-agent problem
What Principal-agent problem means in Economics A-Level, as defined for AQA.
Definitions of Principal-agent problem
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Reference: AQA
A situation where the objectives of managers, such as salary and prestige, conflict with those of shareholders, who desire profit maximisation.
The separation of ownership and control, which leads to differing objectives between managers and shareholders.
Arises from the separation of ownership and control, where managers and shareholders have conflicting goals.
Topics that use Principal-agent problem
- The objectives of firms (AQA A-Level)
Related terms
- Bounded rationality
- Business objectives
- Corporate governance
- Corporate social responsibility
- Firm performance and efficiency
- Marginal cost
- Marginal revenue
- Profit maximisation
Using Principal-agent problem in the exam
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