Principal-Agent Problem

The principal–agent problem refers to the conflict in interests and priorities that arises when one person or entity (the "agent") takes actions on behalf of another person or entity (the "principal").[1] The problem worsens when there is a greater discrepancy of interests and information between the principal and agent, as well as when the principal lacks the means to punish the agent.[2] The deviation from the principal's interest by the agent is called "agency costs". (cf game theory). A big driver of the LBO was the belief that management, being non-shareholders, has this failure.

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