The principal-agent problem is:

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The principal-agent problem refers to a situation where an agent (such as a manager) acts on behalf of a principal (such as shareholders) but has different goals or incentives than the principal. This creates a situation where the agent may engage in risky or irresponsible behavior, knowing that the principal bears the consequences. This is a form of moral hazard, as the agent is able to take risks that the principal cannot fully monitor or control. Adverse selection refers to a situation where one party has better information than the other, and stockholders not acting in the best interest of managers is not the principal-agent problem, but rather the reverse situation.

The Principal-Agent Problem Is