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Chapter 8: Problem 10

The principal-agent problem arises almost everywhere in the business world, and it also crops up even closer to home. Discuss the principal-agent problem that exists in the college classroom. Who is the principal? Who is the agent? What potential conflicts in objectives exist between this principal and this agent?

Short Answer

Expert verified
In a college classroom, the student can be viewed as the 'Principal' and the professor/teacher as the 'Agent'. Potential conflicts may arise due to the difference in the professor's aim to deliver as much detailed, complex knowledge as possible and the student's aim to achieve good grades with the bare minimum effort.

Step by step solution

01

Identification of the parties

In the context of a college classroom, the 'Principal' is typically the student. This is because they are the ones who, either directly or indirectly, pay for the service – the teaching – that is provided. The 'Agent', on the other hand, is typically the professor or teacher because they act on behalf of the students in the function of providing education.
02

Discuss potential conflicts

There could be various conflicts in objectives between the student (principal) and the professor (agent). One possible conflict could be the difference in the level and depth of content a professor wants to deliver versus the ability or willingness of a student to absorb said content. A professor might want to give as much detailed, complex knowledge as possible, while a student might be more interested in gaining a broad understanding of the topic or achieving good grades with minimal effort
03

Conclusion

To summarize, it is important to remember that the principal-agent problem arises due to conflicting interests between the principal (student) and agent (professor) due to differences in their individual goals and incentives. While the professor aims to impart a deep understanding of the subject matter, the student's goal might be to achieve good grades with the least effort, creating a potential conflict of interests.

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