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Principal–agent problem
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==Trust relationships== The problem arises in client–attorney, [[probate]] executor, bankruptcy trustee, and other such relationships. In some rare cases, attorneys who were entrusted with estate accounts with sizeable balances acted against the interests of the person who hired them to act as their agent by embezzling the funds or "playing the market" with the client's money (with the goal of pocketing any proceeds).{{Citation needed |date=April 2019}} This section can also be explored from the perspective of the trust game which captures the key elements of principal–agent problems. This game was first experimentally implemented by Berg, Dickhaut, and McCabe in 1995.<ref>Berg, J., Dickhaut, J., & McCabe, K. (1995). "Trust, Reciprocity, and Social History". ''Games and Economic Behavior'', 10(1), 122–142. {{doi|10.1006/game.1995.1027}}</ref> The setup of the game is that there are two players – trustor/principal (investor) and agents (investee). The trustor is endowed with a budget and can transfer some of the amounts to an agent in expectation of return over the transferred amount in the future. The trustee may send any part of the transferred amount back to the trustor. The amount transferred back by the trustee is referred to as trustworthiness. Most of the studies find that 45% of the endowment was transferred by the principal and around 33% transferred back by an agent. This means that investors are not selfish and can be trusted for economic transactions. Trust within the principal-agent problem can also be seen from the perspective of an employer-employee relationship, whereby the employee (agent) has distrust in the employer (principal) which causes greater demotivation of the employee. It has been assumed that the principal having control in an organisational culture has benefits to for the organisation by creating greater productivity and efficiency. However it also entails some drawbacks that reduce the employee satisfaction such as reduced motivation, creativity, innovation and greater anxiety and stress.<ref>{{Cite journal |last1=Falk |first1=Armin |last2=Kosfeld |first2=Michael |date=December 2006 |title=The Hidden Costs of Control |url=https://www.aeaweb.org/articles?id=10.1257/aer.96.5.1611 |journal=American Economic Review |language=en |volume=96 |issue=5 |pages=1611–1630 |doi=10.1257/aer.96.5.1611 |issn=0002-8282 |access-date=March 8, 2023 |archive-date=March 8, 2023 |archive-url=https://web.archive.org/web/20230308040318/https://www.aeaweb.org/articles?id=10.1257/aer.96.5.1611 |url-status=live }}</ref>
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