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| Principal-Agent Analysis in the Public Sector× | Principal-Agent Model× | |
|---|---|---|
| Field≠ | Public Administration | Game Theory |
| Family≠ | Process / pipeline | Machine learning |
| Year of origin≠ | 1984 | 1976 |
| Originator≠ | Terry M. Moe | Michael Jensen, William Meckling, Bengt Holmstrom |
| Type≠ | Institutional-economics analysis | algorithm |
| Seminal source≠ | Moe, T. M. (1984). The New Economics of Organization. American Journal of Political Science, 28(4), 739–777. DOI ↗ | Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. DOI ↗ |
| Aliases | Public Principal-Agent Analysis, Agency Theory in Government, Political Control Delegation Analysis | Agency Theory, Hidden Action Problem, Moral Hazard |
| Related | 4 | 4 |
| Summary≠ | Principal-agent analysis in the public sector applies agency theory to the chains of delegation that run through government — from voters to legislators, legislators to executives, and executives to bureaucracies. Terry Moe's 1984 article The New Economics of Organization brought this institutional-economics lens into the study of public bureaucracy, asking how political principals can control agents who have their own interests and superior information. The method identifies the principal and agent, specifies how their goals diverge, characterises the information asymmetry between them, and examines the control mechanisms principals use to limit agency losses. Its purpose is to explain bureaucratic behaviour and the design of oversight as the predictable result of delegation under conflicting incentives. | The Principal-Agent Model analyzes how a principal (e.g., owner, employer, policymaker) can incentivize an agent (e.g., manager, employee, firm) to act in the principal's interest when the agent has private information or can take hidden actions. Formalized by Jensen and Meckling in 1976, the model identifies agency costs arising from moral hazard (the agent exerts less effort than desired) and adverse selection (the agent hides unfavorable information). Optimal contracts balance incentives with risk allocation. |
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