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The Agent Principal Problem

The principal–agent problem, in political science, supply chain management and economics (also known as agency dilemma or the agency problem) occurs when one person or entity (the “agent”), is able to make decisions and/or take actions on behalf of, or that impact, another person or entity: the “principal”. Examples include corporate management (agent) and shareholders (principal), elected officials (agent) and citizens (principal), or brokers (agent) and markets (buyers and sellers, principals).

An employee employer relationship is a good example of principal and agent. Employees can carry out their duties or they can take sick leave without really being sick. Any action taken by the agent that is detrimental to the enterprise of the principal is off diagonal.

A binary relationship exists between principal and agent. Either incentives are aligned or diverge. Mutual reciprocity represents win win. Advantage represents win lose. Stupidity represents lose lose. Here we arrive in the realm of the Nash Equilibrium and Game Theory. Lacking symmetry or off diagonal is an advantaged or losing game. Losing and advantaged games have very high costs and so the march toward automation and grounded information is accelerating.

Robots and Blockchains provide a synthetic framework without the principal agent problem. Code can be inspected. Robot articulation can be trialled. Decentralised exchanges, packets of data traversing IP addresses. Programs. No mind of its own.
Out here, the capitalist and the worker are one and the same. Afterall,
it’s harder to build an assembly line than work on one.
Balaji Srinivasan, points to an opportunity for equality and freedom in a virtual digital hive community with shared values. The hive may or may not share common geographical territory. Ultimately, it’s this structure or decentralised autonomous organization that will be a major global player in global systems of economics and governance, out-competing, disintermediating and disrupting all manner of legacy systems that suffer excessively from the principal agent problem.

Andrew Noble

Andrew Noble

Accountant, Technologist & Futurist