The principal‐agent problem in economics and in politics

Abstract

Purpose

The purpose of this paper is to show that the assignment of right between the principal and the agent, under which the latter have the management of the assets that the former own, is similar to that between citizens and politicians in representative democracy, and it could, in both cases, turn in to a state of being a voluntary hostage for the principal.

Design/methodology/approach

Those who take decisions either in the economy or in society/politics, actually through their continuous presence and acting, set the frame under which decisions will be made, i.e. which behaviour is acceptable, rules of the games, codes and terminology, values and hierarchy among participants.

Findings

Since principals abstain from the everyday decision making either in economics or in politics, they lose the ability to influence the frame and the practices on how decisions are made, and therefore decisions are evaluated with the criteria established by agents and they are not those which principals would possibly have.

Practical implications

A part of the management of the assets of principals in the economy or the “asset of vote” of citizens, especially in the long run, actually is conducted by the agents (managers‐politicians) to favour their own pursuits and not those of principals.

Originality/value

Under these circumstances the principal‐agent problem, either in economics or in politics, has two alternative solutions: either principal should take over the management of his assets, or accept the state of being voluntary a hostage of his servants‐agents (managers‐politicians).

Citation

Kaskarelis, I.A. (2010), "The principal‐agent problem in economics and in politics", Humanomics, Vol. 26 No. 4, pp. 259-263. https://doi.org/10.1108/08288661011090866