Principal-Agent Dilemma

The principal-agent dilemma arises from the conflict of interests between a principal and an agent authorized to act on their behalf. The dilemma occurs when the agent’s incentives prioritize their own benefit over the principal’s interests or those they represent. This dilemma is pervasive in business, finance, and markets and often requires adjustments to reward structures to align the priorities of both parties, aiming for incentive alignment.