agency problem



A conflict arising when people (the agents) entrusted to look after the interests of others (the principals) use the authority or power for their own benefit instead.

It is a pervasive problem and exists in practically every organization whether a business, church, club, or government. Organizations try to solve it by instituting measures such as tough screening processes, incentives for good behavior and punishments for bad behavior, watchdog bodies, and so on but no organization can remedy it completely because the costs of doing so sooner or later outweigh the worth of the results.

Also called principal-agent problem or principal-agency problem.

Use agency problem in a sentence

  • The local police department had recently come under fire from the public questioning agency problems and demanding accountability be taken for acting to their own benefit.

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  • There was an agency problem that was quite complex in this instance as there were many interests to be considered.

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