Rather than completing a variety of task, we hire others, an agent, to complete the task on
The agent’s job is to work on principal’s behalf, keeping in mind best interest of principal.
Delegation is indispensable when principal has other tasks they need to complete, when
completing a task oneself is unrewarding, when special expertise is required and when
enforcement is necessary.
The principal agent problem arise when they to scam.
Either player desires maximum gain for minimal effort,
Asymmetric information is when the principal cannot observe, evaluate or understand
Easy to corrupt of skimming.
Enforcement agents takes the advantage of its powers derived from principal to enforce
contracts and rule of law and uses power to rule principal.
Self-interest does not mean that people are no necessarily selfish nor that people will not
act to help others.
It does examine when agents will take advantage of principals
There are many ways to try to solve minimize principal agent problem.
There are many situation were self-interest coassignee with the principal.
There are four varieties of corruption: dash
Are bribes any different than “tips” like at a restaurant? Do bribes reward good service,
solving principal agent problem since bribes compensation to customers satisfaction?
Bribes are solicited before the work is done.
What if there were incentives to “do your own things” and pursue your self interest rather
than the interest of the entire group?
Prisoner’s Dilemma: Two burglary suspects have been arrested. Each has two options,
confess or keep their mouths shut. If both keep their mouths shut, they’ll stay in jail
for possession of stolen property for a maybe a year. If one confesses and name the
other as a criminal than one will go free and the other be punished with 20 years in
prison. If both confess, than both still will go to prison with five years each. What
should each prisoner do? If Prisoner B confesses, what is the best course of action for
Prisoner A? If Prisoner B keeps mouth shut, what is the best course of action for
Prisoner A? therefore, if Prisoner A finds himself in a dilemma if is best to confess
and same with the other.
The best interest of group usually need an enforcement mechanism. Self-interest can
make society worst off. Challenge for society: create institutions to induce
cooperation or keep self-interest at bay. Undeveloped nations that fail to mange itself
will be warned down, while developed nations will stay fit. Thus, the rich gets richer,
the poor get poorer.
An ideal state is that it control a defined territory and population; have monopoly on use
of force; have a set of rule-bound institutions that perform governing tasks like
Less an ideal states lack border, monopoly of use of force, is not able to perform normal
state functions. State is extractive, taking resources from domestic economy without,
providing “normal” benefits like regulation, contract enforcement, ect. State=person.