Final answer:
The principal-agent problem occurs when agents have different objectives than principals, leading to a collective action problem. Solutions include monitoring and third-party enforcement to align individual and group interests.
Step-by-step explanation:
The principal-agent problem arises primarily because agents pursue some of their own objectives that may conflict with the objectives of the principals. This is a type of collective action problem, where individuals within a group have incentives to act in their own self-interest even if it negatively affects the group as a whole and ultimately themselves. The principal-agent problem can lead to inefficiencies and conflicts within an organization, as the agent might not act in the best interest of the principal who has employed them.
Collective action problems are prevalent in various social and economic settings, such as politics and public administration, where the interests of the individual may not align with the collective good. Examples of collective action problems include the tragedy of the commons, free riding, and the prisoner's dilemma. To resolve these issues, mechanisms like monitoring, incentives, punishments, or third-party enforcement may be required to align individual actions with group objectives.