When elected officials are motivated to act in their own interests rather than as agents for the people, who are the principals, the principal-agent issue can arise.
There is much pressure on elected politicians, appointed officials, and lobbyists to take actions contrary to the interests of the people.
The conflict of interests between the owner of an asset and the person to whom control of the asset has been transferred is known as the principal-agent dilemma. The issue can arise in a variety of contexts, including the connection between a client and a lawyer and that between stockholders and a CEO.
Moral hazard in economics refers to when one individual takes additional risks because those risks are paid for by another. You enroll in health insurance, and since your injuries will be covered by someone else's policy, you choose to start BASE jumping.
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