Principal-Agent Theory
/ˈprɪnsəpəl ˈeɪdʒənt ˈθɪəri/
Definitions
- (n.) A framework in law and economics analyzing relationships in which one party (the principal) delegates authority to another (the agent), focusing on resolving conflicts of interest and information asymmetry.
The principal-agent theory explains why corporate managers sometimes prioritize personal goals over shareholders' interests.
Forms
- principal-agent theory
Related terms
See also
Commentary
Emphasizes the importance of aligning incentives and monitoring mechanisms in legal drafting to prevent agent opportunism.
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