M9-S3 - Agency theory

In political science and economics, the principal–agent problem or agency dilemma treats the difficulties that arise under conditions of incomplete and asymmetric information when a principal hires an agent, such as the problem of potential moral hazard and conflict of interest, inasmuch as the principal is—presumably—hiring the agent to pursue its, the principal's, interests.

The underlying view of mankind is that managers are:

• Lazy
• Acting in self interest
• Risk avoiding

Shareholders are:

• Risk neutral
• Want to maximize share holder value

Part of M9-S3 - Costs of organizations See also: http://en.wikipedia.org/wiki/Principal-agent_problem