Principal-Agent Relationship

The Principal-Agent relationship is a scenario where one party, the principal, hires another party, the agent, to act on their behalf. This relationship often occurs in business, where the principal (like a company owner) relies on the agent (like a manager or employee) to make decisions or perform tasks. The challenge arises because the agent may have different interests than the principal, leading to potential conflicts. Effective communication, clear objectives, and incentives are essential to align their goals and ensure the agent acts in the best interest of the principal.