Definition: Principal-agent problem is a particular game-theoretic description of a situation. There is a player
called a principal, and one or more other players called agents with utility
functions that are in some sense different from the principal's. The
principal can act more effectively through the agents than directly, and must
construct incentive schemes to get them to behave at least partly according to
the principal's interests. The principal-agent problem is that of designing
the incentive scheme. The actions of the agents may not be observable so it
is not usually sufficient for the principal just to condition payment on the
actions of the agents.
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