Definition
The principal-agent problem is a term that describes the situation in which the agent is not operating on behalf of the principal and does not have the same incentives. This can lead to problems down the line, since it becomes harder for both parties to work towards a common goal.
In the room
How the word shows up in a real conversation.
In a Monday review, someone writes Principal-agent problem on the board and restates it: “Conflict that arises when one party (agent) acts on behalf of another (principal).” The next move is a test, a cut, or a double-down — not another debate about the word.
Common mistake
Using Principal-agent problem as a label instead of a fact. If you cannot point to the evidence — a number, a customer, or a written assumption — you are using the word as jargon.
See also
Price war
Competitive situation where companies repeatedly lower prices to gain market share.
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Primary market
Market where new securities are issued and sold for the first time.
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Privacy compliance
Adherence to laws and regulations protecting personal information and data.
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Pro Forma for Startup
Financial projection showing expected performance of a new business venture.
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