--- aliases: [] --- #humans # [[Epistemic status]] #shower-thought # Related [[Naval - Principal-Agent Problem — Act Like an Owner]] # Principal agent problem >**A principal’s incentives are different than an agent’s incentives** > >Now, the principal-agent problem pops up everywhere. In microeconomics, they try to characterize it this way: The principal’s incentives are different than the agent’s incentives, so the owner of the business wants what is best for the business and will make the most money. The agent generally wants whatever will look good to the principal, or might make them the most friends in the neighborhood or in the business, or might make them personally the most money.  > >You see this a lot with hired-gun CEOs running public companies, where the ownership of the public company is distributed so widely that there’s no principal remaining. Nobody owns more than 1% of the company. The CEO takes charge, stuffs the board with their buddies and then starts issuing themselves low-priced stock options, or doing a lot of stock buybacks because their compensation is based directly tied to the stock price. >~ [[Naval Ravikant]] [[Marx]] stressed that the employer purchases the worker's time on the labour market, not the worker's work. In companies the employees are not paid by the value they bring which creates a misalignment between employee and employer. >A company that could pay all its employees so straightforwardly would be enormously successful. Many employees would work harder if they could get paid for it. More importantly, such a company would attract people who wanted to work especially hard. It would crush its competitors. >~ [[Paul Graham]] I talked to arweave.org core team, they'd turn the agents into principals by letting them act as founder Also, scale tend to increase the gap between agent and principal, in large companies for example. # External https://nav.al/principal-agent