TA: Xavier Medina
POSC 10--Dr. Kevin Esterling
The principal-agent problem has been seen as an issue that principals are trying to get there employees to act in their best interests. However, this problem is unsolvable because the employee may have a slight advantage and may have a different interest from the principal. Political institutions encourage the government officials to use expertise in their work, however, this dilemma occurs because it is very difficult for members like the President to understand the bureaucrats’ work properly and it is very difficult for them to maintain accountability. McCubbins explains ...view middle of the document...
This makes the issue much more complicated. The agency costs are known to be a type of transaction, because the principals are never sure if their agents will act in their best
interests. This includes the principal’s selection of the best agents. They must have different procedures to better monitor their agents such as bonding payments and information costs in contract management.
There is an advantage for principals to gain higher agency costs by not letting principals to gain information. The agents can regard information as a source of power which just means that the more difficult is it for a principal to gain information the more likely contracts will be framed for terms of behavior. A way to solve this issue can also be used by goal congruity. This is something in which principal and agent increases the incentive of the agent. McCubbins explains that the authority of governmental procedures is usually always very uncertain and that they mostly rely on new organizations that are economically substantial.
Another solution to this problem could be also to better relate the provisions of incentives so that the principals can be pleased with the way that their agents act. It is better to do this because then the self-interested acts that the agent does will not only keep himself pleased but will also give what the principal desires. This could be known in terms of something known to be a game plan or game theory, in which the rules of the game are changed. Some agents are more risk-aversive than others, perhaps due to...