The-definition.com

Definition

Occurring agency problem

Because owners have access to only a relatively small portion of the information that is available to executives about the performance of the firm and cannot afford to monitor every executive decision or action, executives are often free to pursue their own interests. This condition is known as the moral hazard problem. It is also called shirking to suggest “self-interest combined with smile.”

            As a result of moral hazards, executives may design strategies that provide the greatest possible benefits for themselves, with the welfare of the organization being given only secondary consideration.

Moral Hazard Problem: An agency problem that occurs because owners have limited access to company information, making executives free to pursue their own interests.

Share it:  Cite

More from this Section

  • Agency costs
    The cost of agency problems and the cost of actions taken to minimize agency problems ...
  • Consortia
    ...
  • Motivators
    Motivators is the factors that increase job satisfaction and motivation. ...
  • Service profit chain
    A service profit chain is the service sequence from employees to customers to profit. ...
  • Simple structure
    Simple structure, which is an organizational design with low departmentalization, wide ...