Principle-Agent Triangle Model
The triangle relationship might cause conflicts because the two principles have different standards of what is called a "good performance". As the example like a lawyer, he or she is probably expected to solve the case as soon as possible and earn high profits from customers by the law firm. But from the perspective of customers, a good performance is expected to be responsibility, great efforts or simply wining in the case. Since two principles' have different views on agent's performance, it gets hard to satisfy both sides at the same time for agent.
Actually the example given in the class is a little bit different. Regulators who worked in government is likely to work in companies which they have involved with after they retired. So in this situation, government needs to maximize overall benefit in the market, while companies are more interested in industry profits. So when the agents (regulators) satisfy government interest, the companies are probably prevented from pursuing their highest possible profits. The agents would have to choose one principle to be satisfied. In this case, since agents have tendency to pursue their own interest as well, such as corruptions or high wages received by working in companies after retiring.
I have this similar experience in which a triangle model exists. During this summer when I was in Shanghai, I went to check out contact lens in the mall. So in this situation, I was the principle and the agent is the person who works in the optical shop. I was trying to find contact lens that are comfortable to wear, do little harm to eyes, and, of course, at a reasonable price. Another principle for the agent is the owner of the optical shop. This is a typical triangle relationship. From the view of the owner, agent's performance is determined by the profits agent brings to the company. So there is a gap between evaluation from the owner and me.
I told the agent my request and asked about recommendation. Also, I need to purchase enough for a year use because I don't plan to go back to China during winter break. The agent then recommended me a kind of fancy contact lens which she claimed to be protective for eyes and very comfortable to wear. This kind was daily disposable so the price is super high after I calculated roughly for each lens's price. I told her that the price was unreasonable and since I want the quantity for a year, I was considering for week disposable contacts instead. But she didn't give up recommending the expensive one to me until I showed the intention to look around for other shops. So apparently there is a conflict between owner's interest and mine. And she tried to put her boss's satisfaction in priority rather than mine. The reason is probably that her wage is related to the profits she makes for the company.
One way that I think can resolve the tension between two principles is that when their intention is not really opposite or can be compromised by negotiation. In my experience about purchasing contact lenses, even if I don't choose the super expensive kind, the owner of the shop would still make some profits. Jus like in the bargaining model, the transaction can only happen when the price exceeds cost of production and less than value for customers. Since the information is dissymmetric, I, as customer, have no idea about the cost of production. In general the producer have more advantage in this market. Secretly I assume that the cost of production actually is way lower than the prices. In addition, the quality of lenses is hard to verify unless the customer actually try it on for some time. Thus in this case I chose the one that seemed with good quality and with the price that I can accept. What I want to say is that when I can find the product meeting my needs, and at the same time the owner can make profit from that, then it is easily resolvable. But when the two principles have totally opposite desire and intentions, then the agent's own interest would determine which principle the agent would try to satisfy as a result.
I would ask in the example you gave with the contact lens purchase, what would have happened had you negotiated directly with the owner instead of somebody who worked for the owner? If the negotiation would have gone pretty much the same way, then the agent did what the owner wanted the agent to do. So there really wasn't a triangle problem. This hinges on what would have happened when you mentioned going elsewhere. If the owner had said - ok, then leave. That is different from what your salesperson did, so would be evidence of a triangle problem. But if the owner would also have made a reasonable counter offer, then it would seem the agent was working for the owner. You are the customer and they want to do business with you. But your needs are not distorting the relationship between the salesperson and the owner.
ReplyDeleteI realized the problem. So in this case the agent is simply the did what the owner would do. So there is actually no change in relationship between salesperson and the owner. So from my understanding for the triangle problem is that the distorting happens only if the agent reaction is different from the owner, which means that when another principle (the customer) comes in, the agent tend to do what the owner or manager doesn't want to do. Therefore there is a conflict.
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