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Is the agency problem an ethical or economic issue?

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user420671 | eNotes Newbie

Posted August 11, 2013 at 8:21 PM via web

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Is the agency problem an ethical or economic issue?

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farouk23 | College Teacher | (Level 1) Associate Educator

Posted August 14, 2013 at 2:29 PM (Answer #1)

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The agency problem refers to the dilemma whereby a conflict of interest arises whereby a party is expected to act in the best interest of another party. Since we are motivated by self-interest, conflicts may arise as a result of the representative party acting in a manner contrary to the best interest of the patron.

The agency problem is primarily and ethical issue (although it does have economical elements) as contracts usually stipulate for explicitly and implicitly that an agent should act in the best interest of the principal. A violation of this is an ethical infraction, although in many cases it can also lead to prosecutions or loss of professional licenses in regulated industries. 

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