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Explain what is meant by the ‘principal agent problem’ and discuss its relevance to explaining the organisation and behaviour of the modern firm.
The separation of ownership and management brings principal agent problems. ... This potential conflict if interest is known as the principal agent problem.
The principal agent problem describes a class of interactions between two parties to a contract, an agent and a principal. The legal origin of these terms suggests that the principal engages the agent to act on his behalf. In economic applications the agent is not necessarily an employee of the principle.
Approximate Word count = 465
Approximate Pages = 1.9
(250 words per page double spaced)
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