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  • Conflict of Interest: Managers vs. Workers

  • Moral Hazard (Hidden Actions)

  • Principal-Agent Problem

The Employer-Employee Relationship as a Principal-Agent Problem

The relationship between an employer and an employee can be modeled as a principal-agent problem, framed as a game between two parties with conflicting interests. In this model, the employer acts as the principal and the worker as the agent. A fundamental conflict of interest exists because the principal (employer) wants the agent (worker) to exert maximum effort to increase profits, while the agent may prefer to work less hard. This problem is rooted in the fact that an employment contract cannot enforce the agent's level of effort due to issues of asymmetric or non-verifiable information.

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5 months ago

Contributors are:

Gemini AI
Gemini AI
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Google
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References

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Library Science

Economics

Economy

Introduction to Microeconomics Course

Social Science

Empirical Science

Science

CORE Econ

Ch.6 The firm and its employees - The Economy 2.0 Microeconomics @ CORE Econ

Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ

The Economy 2.0 Microeconomics @ CORE Econ

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