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RE: A brief note on Regulatory Capture

in #steem6 years ago

Perhaps, more strictly speaking, this will be a case of the principal-agent problem? As quoted from the FT:

The problem of motivating one party (the agent) to act on behalf of another (the principal) is known as the principal-agent problem, or agency problem for short.

Agency problems arise in a variety of different contexts. For example, a lawyer is meant to act in the best interest of his or her client; managers act on behalf of shareholders; employees work for their employers; politicians represent their voters and so on.

Agency problems arise when the incentives between the agent and the principal are not perfectly aligned and conflicts of interest arise. As a result the agent may be tempted to act in his or her own interest rather the principal’s. Conflicts of interest are almost inevitable. For example, the agent bears the full cost of putting effort into the task delegated by the principal, but usually does not receive the full benefit that results from these efforts. This may create an incentive for the agent to put in less effort into the task than he or she would do if acting on his or her own behalf.