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Lecture 2

Week 2.pdf

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ECON 2720
B Ferguson

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Lecture 6 January 15, 2014 10:26 AM Incentive Compatibility and Principal/Agent Problem - The principal/agent problem refers to the problem of how to design incentives for the agent so he will act in the best interest of the principal - Many people believe the problem of the recent financial crisis is incentive structures being designed incorrectly so people act in the best interest of themselves - Xenophon (400BC) was the first person to write about this problem in Athens - Athenians elected not only political leadership but military leadership as well - Political leaders would swing the vote against some military leaders forcing them into exile even though they were fantastic generals - Xenophon led an invasion as Persia and wrote one of the best military memoires ever - When returning to Athens he has exiled for an unknown reason and then began writing philosophy with Plato and other Greek philosophers - He wrote something called the Estate General - Citizens had to spend a lot of time in Athens completed their civil duties so most of these people made an income from the work being done on
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