Principal-Agent Problems

Leaders: they aren’t always on your side.

Takeaway Points

  1. A principal hires an agent to complete some task the agent is unable or unwilling to do.
  2. A leader is an agent to the citizens (or principals) of a country.
  3. Principals must be worried that agents will do what the agents want to do and not what the principals hired the agents to do. This is especially concerning when the two sides have unaligned preferences, there is no effective monitoring, and future incentives are unavailable.
  4. Leaders might instigate wars when it is convenient for them even though those wars are bad for the country.