Micro-Thought 4: The Principal-Agent Model and POTUS Economics Essay

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Micro-Thought 4: The Principal-Agent Model and POTUS
The principal-agent model (in the President of the United States (POTUS) and the Nation
Moral hazard occurs where one party to an agreement fails to act in good faith and the agent’s action holds some private information and the other party (principal) then bears the consequences of that behavior or action (Nicholson and Snyder 532). Sometimes the agent has more access to information about the consequences of their actions more than the principal and may even act inappropriately if it is not in their best interest to prioritize the principal’s interests the agency relationship exists as the well-being of one person depends on the actions of another person, but sometimes the agent's interests and objectives are not aligned with the interests of the principal. Even when there is a system that does eliminate moral hazard if it is possible to share risks this improves the principal-agent problem.
The nation would be the agent and people would assume that the president for the best interests of the nation. On the other hand, the President of the United States (POTUS) would be the agent as a representative of the people. In a democracy like the US people choose their preferred government officials. Ideally in a democracy, agents elected to the legislature should be responsible to electorate and voters ought to sanction bad leaders through the voting process. When the principal (the nation or electorate)-agent (the representative), there is citizenship-political-state relationship and effective representation by the legislature. Preferential votes allow only patronage where there is low level of civic participation participatory mechanisms. This is not the case with POTUS as there is legitimate democracy, which influences their effectiveness and the government when implementing policies.
As the agent is the person or party who acts on behalf of the principal they ought to focus on the principal’s best interests and ensure that the outcomes are favorable to the to these principals. Merely entrusting the agent and delegating the power of decision does not mean that they will always defend the principals’ interests (Nicholson and Snyder 532). The citizens, voters or the electorate entrust their political representative (POTUS) with the application of laws and implementation of policies for the common benefit. Besides aligning common interests to deal with the principal-agent problem, reducing risks ensures that the outcomes are more favorable to both the nation and policy ...