Information, Risk, and Insurance

This looks at how imperfect information can lead to negative economic outcomes. Examples include where a second hand car salesman knows the car has a fault, but because the consumer doesn’t know, they are willing to pay a higher price.

Principal Agent Problem Definition

Principal-Agent Problem Definition

The Principal Agent Problem occurs when there is a conflict in interest between ‘the principal’, and ‘the agent’. The principal refers to the individual that delegates authority and responsibility to the agent. So the agent acts on behalf of the principal. The problem then arises where the interests of the agent and the principal do not align.