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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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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