Principal Agent Problem

The principal-agent problem occurs when one party is given the right or authority to make decisions that impact the principal. Most often, the principal puts the agent is a position wherein conflict arises due to a non-alignment in objectives of the two people. With today's changing team structures and more dynamic work, the model can be better optimized to reflect a triangular structure, one where an agent deals with multiple principals. This is very much true in today's circumstances where there are more channels of control than just a single manager or principal. A simple principal-agent problem that I have witnessed and been involved with is during consulting work for the on-campus organization OTCR consulting, there is often problems is how to handle the work. As the consultants ourselves we are the agents, and have a few different principles. Firstly, the client who is paying us and expects a job to be done is our primary principal, but then is also the firm itself and the managers and partners within OTCR who are principles as well. This dual principle nature often leads to greater problems. As the principals objectives are different, they both expect different outcomes. In this situation, both principles wanted good quality from the agents, but there were still differences which led to problems. The firm wants us to act and perform the tasks as per the contract and statement of work. The client on the other hand, as the scope changed wanted different information and analysis. Thus the specific duty changed as per one of our principal's wishes. Other dissimilarities in objectives that would arise are timing vs quality of work, etc. Of course as with principal-agent problem, the main problem arises from the agent themselves, thus the agent or consultant in this case, would differ in objectives and thus maybe not work as hard or efficiently if they were the principals. Although here, the client would be the more important principal it would depend on situation to situation. I think wherever there are multiple principals, the one that is the bigger customer would be the principal and the agent should try satisfying both, but should prioritize one depending on what they seem fit. There are certainly multiple ways to solving the problem, depending on each situation. Of the best methods to solve this problem would be to bring both principles together and mutually decide on a solution that the agent should work towards. This should ensure that that the agent works in accordance with both principles. A contract or written document prior to starting said work would greatly help in establishing the guidlines and what each party should expect out of the transaction. If the agent satisfies one principal, they can certainly ignore the other or worse, perform opposite to what the second principal wanted. For example, if the Client wanted to promote advertising and brand recognition and asked OTCR to spearhead its marketing efforts. If this was an arbitrary target we had to reach without any measurable data(such as viewers or users) and OTCR wanted us to keep our budget and expenses low. As agents we could spend less in advertising material thus doing a good job according to principal managers of OTCR but would not do too well from the clients perspective of spreading the brand name.