Principal-agent problem
One party delegates a task to another who knows more or acts unseen. Not itself a collective action problem, but it becomes one of its causes when a group hands monitoring or enforcement to someone.
Principal-agent problem
A principal hands a task to an agent whose information or actions the principal can't fully observe. The standard model:
the principal delegates an action to a single agent
— Jean-Jacques Laffont and David Martimort, The Theory of Incentives (2002), p. 13
The principal makes a take-it-or-leave-it contract offer, and a court enforces it (pp. 13–14). Laffont and Martimort consider three information problems (p. 14):
- Adverse selection (hidden type): the agent knows something the principal doesn't, such as their costs.
- Moral hazard (hidden action): the principal can't see what the agent does.
- Nonverifiability: both know, but a court can't check.
Where it sits relative to collective action
Adjacent, not a pattern. The basic problem is between two parties, not within a group, and the principal designs the game rather than playing a symmetric one with peers. It isn't on the Greed and fear map.
A cause, once a group delegates. Many remedies for collective action create an agent: a monitor, a ruler, an enforcer, a manager. Ostrom (Governing the Commons, 1990, pp. 40–41) describes the theories of the firm and the state this way: one person supplies the rules and keeps the residual, which makes their threats credible. The group's problem is then whether the agent does the job, which raises "who monitors the monitor".
The link to teams. Alchian and Demsetz (1972) argued that when team members' efforts combine, output alone doesn't show who contributed what, so a monitor is needed (as paraphrased by Ostrom, p. 221, n. 13; not read at first hand [?]). Holmström (1982) showed that when individual effort can't be observed and pay is shared, each team member under-supplies effort; Sandler calls this "a classic collective action problem" (Collective Action, 1992, p. 125; Holmström not read at first hand). That case, Moral hazard in teams, is a Prisoner's Dilemma inside an organization. Laffont and Martimort's second volume treats several agents, where the principal "must overcome the free-rider problems which might exist among agents" (p. 14).
Related items, placed
| Item | Placement |
|---|---|
| Moral hazard | Adjacent; a cause inside delegated remedies |
| Adverse selection | Adjacent: mostly a trade or insurance problem |
| Moral hazard in teams | Pattern: a battle line inside a firm |
| Second-order free-rider problem | Pattern, one level up |
| Mechanism design, Clarke–Groves and VCG | Remedy family: design the game (Laffont and Martimort pp. 23–24) |
