Recently, Sambaran Mitra asked:
Why would an honest person run for public office or serve as a committee member of a resident welfare association? What kind of system will provide the right incentives for honest people to assume public office?
Designing proper mechanisms for ensuring honest behavior in officials is well-understood. The general class of problems is known as the “principal agent” problems.
The politicians are the agents of the citizens who are the principals; the resident welfare association members are the agents of the residents who are the principals. The managers of a firm are the agents and the shareholders of the firm are the principals. The workers are the agents and the owner of the firm is the principal.Continue reading