Understanding Principal-Agent Theory
This program breaks down the core concepts of Principal-Agent Theory, using the example of a corporation to illustrate the relationship between owners (principals) and managers (agents), the inherent challenges like information asymmetry and misaligned interests, and the mechanisms for mitigation such as monitoring and agency costs. The goal is to foster a clear understanding of these dynamics and their implications.
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Program Modules
What You'll Accomplish
- Define Principal-Agent Theory.
- Identify the roles of principals and agents in a given scenario.
- Explain the concept of information asymmetry in the principal-agent relationship.
- Describe common conflicts of interest between principals and agents.
- Understand the nature and purpose of agency costs.
- Discuss strategies to align the interests of principals and agents.
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