How to solve Principal-Agent Problem?

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Principal-Agent is a well-known problem in microeconomics which can arise when the incentives of the agent and the principal are not aligned.

The agent may have their own interests that conflict with those of the principal. As a result, the agent may take actions that are not in the best interest of the principal.

There are various ways to solve the principal agent problem.

One way is to make the agent more accountable to the principal. This can be done by increasing the transparency of the agent’s actions, or by tying the agent’s pay to the principal’s desired outcomes.

Another way to solve the problem is to use financial incentives to encourage the agent to act in the principal’s best interests. Finally, the principal can use monitoring and oversight to keep track of the agent