Question

Analyze how the current controversy regarding building a physical wall along the sothern US-Mexico border might be explained using a principal-agent model. Who are the principles? Who are the agents? What represents the principal-agent problem in this situation? How might this problem be minimized?

Answer 1

The controversy can be explained by the principal agent model, as Mexico is letting its people migrate illegally to the USA and it is harming USA in terms of economic consequences and chaos at society level. Here, Mexico is also considering their short term benefits, at the cost of USA. So, it is a case of principal agent problem. Here, principal is USA and Agent is Mexico. There are huge number of people from Mexico, who come to USA, work and send income to Mexico that drives the economy of Mexico. Hence, for Mexico it is important to have good relations and growth of the USA so that Mexico also keeps growing. Hence, Mexico's best interest and growth are tied with the growth and stability of the USA. Though Mexico is only considering short term benefits and letting their employees go illegally to the USA and not taking right steps to stop it. It represents principal agent problem.  It is similar to the employees' situation in the organization as agent when its interests are linked with the growth of the organization as principal.

This problem is minimized when Mexico cooperates with the USA and implement suitable policies at home so that illegal migration is stopped, while helping USA to build such barriers. In return, USA will ease the migration norms for the people of Mexico so that they are also benefited from the robust job market in the USA.