Question

explain modern agency problem discuss wether it can be eliminated .if so how? If not ,why not?

Answer 1

Modern Agency Problem:

It is a problem which arises due to conflict of interest within two or more parties. It occurs when the party/agent is assigned a task/work by the pinicipal, and the agent start working for his on own intrest/ gain instead otherwise.  

For example, a company's management and the company's shareholder, here the management of a company is hired to complete a task of maximizing the value of shareholders. But instead the management might end up acting on its own interest like a liisure period, no work yet drawing huge salary income, basically taking advantages of their senior most position in the company's management.

Eliminating the modern agency problem is impossible since no work in a corporate world can be done without working along with some 3rd party's. This is because every firm speacializes in certain aspect of doing a business/ process i.e. have particular skill set. Also, there are many other factors like constraints of time, place, movement that makes a company assign task to other party's instead of doing it themselves.

That being said the modern agency problem can be limited or minimized but cannot to be completely eliminated.

To minimize the problem one can have the following set of actions:

(A) Regulate: One should have a third part to regularly monitor the work done by the agent been assigned a particular task. This helps in keeping this on check and hence, reducing the chances of some adverese aftermath.

(B) Incentives: One can provide incentive to the agent for completing the task as per strict guideline and outcome expectations. In previous example, we can a part of management salary drawing from the performance of the share value in the market. This will make the management work properly and in the interest of the shareholder and eventually benefiting both.