Question

One way to reduce the agency problem is to understand what motivates the agents (managers)”. Discuss this statement using the Agency theory and Maslow’s hierarchy of needs model.

Answer 1

Agency theory is used to reduce the agency problem and motivates the agents.

The is going between the principles of the agency and their agent. Agency holders or shareholders is the principle of the agency and the agency executives is performed the agent role.

When the conflict arise between both of them then ageny theory is used for reducing the conflict.

Maslow’s hierarchy of needs model decribe the needs of the agents which motivates them :-

1. Basic needs - It is those needs which is important for survival that is water, food, cloth, and house for shelter that is fulfill by agency by the salary.

2. Safety and security - It is the need which is necessary after basic need tagt is safety. You want to feel safe if you go outside. And you also want the security of the job.

3. Love and belonging :- You always love to work their where you find love, belongingness, attachment with the staff. This need is necessary for emotional support.

4. Self - Esteem :- You always feel satisfied when you are appreciated from others for your work. It makes you feel motivated.

5. Self - actualization :- After the all needs fulfilled, you want self actualization means you want to grow more. You have all your needs then you want to go forward for growth.