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 “A bit on the Principal Agent Problem”