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Principal-Agent Problem

The principal-agent problem refers to a dynamic between principals (those who need work accomplished) and agents (those contracted to carry out the work). Traditionally, principal-agent theory has been used in the field of economics to describe the relationships between boards of directors and executives at firms. The applicability of this theory has recently been expanded to other fields, including education policy, particularly as a framework underpinning performance pay for district superintendents, school leaders, and teachers. This entry discusses the assumptions of the economic theory behind the principal-agent problem and provides examples of its use in current education policy debates.

Key Assumptions

The conventional principal-agent model has four primary assumptions, which are discussed in turn below. The degree to which these assumptions hold in reality varies according to ...

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