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What are the essential features of a principal-agent problem

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Principal-agent problem

Q1- What are the essential features of a principal-agent problem?

Q2- Why is "hidden information" a crucial element of any principal-agent problem?

Q3- Show that, optimally in a principal-agent problem, the agent is rewarded if the signal observed is likely given the action the principal desires of the agent, and unlikely given any different action, while the agent is "punished" in the opposite situation.

Q4- In the context of a principal-agent problem, explain the "incentive intensity principle" and the "equal compensation principle".

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