Question

The two general ways of addressing the Principal-Agent problem are

1. Prosecution and Conviction

2. Alignment and Oversight

3. Treasury and the Federal Reserve

4. Accounting and Auditing

Answer 1

The main reasons for principal and agent problems are conflicts of interests between the two parties , because of asymmetric information between them. which means the agent tend to possess more and more information than principal during his work allocated by the principal. Thus it results in agency costs ,since all the expenses incurred by both the agent and principal need to be borne by the principal himself.

While coming to the general ways of addressing the principal agent problems out of prosecution and conviction , we can define them individually as , in prosecution we conduct legal proceedings against someone in the criminal charge , where as conviction is about the declaration from verdict of jury or it can be a decision by judge in the court of law that someone is guilty of criminal offence.

So considering both of them we can say that depending upon the criteria and the situation the problem between the two needs to be sorted.

While on the other hand alignment refers to the position of agreement which is very much needed and common to between the principal and agent for any future issues that they may face.

Oversight is about unintentional failure or the notice to do something , which means bithe parties should be aware about the facts and terms that they are entered in , so that they can minimise the issues.

Coming to treasury and federal reserve it is very important to be confidential and truthful in monetary issues as it may result in numerous problems,so it's better to have some agreement about this between them.

Accordingly, the accounting and auditing also plays very important role between principal and agent in order to avoid any unnecessary interruptions which may impact the future growth.