Principal Agent Problem

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Roy Walker:

"The principal-agent problem occurs when one person (“the agent”) makes decisions on behalf of another person or entity (“the principal”) and does not proportionately take on the risk of those decisions. The classic example is a public company with a traditional top-down organizational structure. In this case, the CEO often takes on much more risk than the owners (shareholders) want him to because he is poised to benefit from the upside and will not experience as much of the downside if his risky decisions do not pay off. DAOs seek to mitigate this by democratizing management and requiring consensus for each decision."