• The agency theory attempts to explain and resolve disputes about the respective priorities between principals and their agents.

  • Principals rely on agents to complete certain transactions, resulting in a difference in priority and method agreement.
  • The difference in priorities and interests between agents and principals is known as the principal-agent problem.
  • Resolving differences in expectations is called “reducing agency losses”.
  • Performance-based compensation is one of the ways that is used to achieve a balance between the principal and the agent.
  • The general relationship between principal and agent includes shareholders and management, financial planners and their clients, and tenants and landlords.