What is the Principle-Agent Problem?

-The Divorce of Ownership from Control is the Root of this Problem -A principal (Shareholder) pays for an Agent (Director) to act in the principal's Interests, but instead, the Agent acts Selfish -If the Principles interest was for Maximum Profit for Maximum Dividends, but the Agents interest was for Maximum Bonus, which comes from Maximum Revenue, then you can see the Tension -Directors may be also willing to Expand the Firm for their selfish Interests - Power grows, and Salary expands. -Employees can also be the Agents in this scenario. The Agent here wants to increase his Pay or have Job Security, rather than being profit-maxed (Which could mean a Lower Wage for the Agent...)