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 "identifier": "kaal:entity:principal-agent",
 "name": "Principal agent",
 "termCode": "principal-agent",
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 },
 "author": {
  "@type": "Person",
  "name": "Wulf A. Kaal",
  "identifier": "https://orcid.org/0000-0003-0757-275X"
 },
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   "@type": "Claim",
   "@id": "https://wulfkaal.github.io/claims/1428387-021",
   "identifier": "kaal:claim:1428387-021",
   "text": "The principal-agent problem in complex financial products is exacerbated by hierarchies in financial institutions, which create multiple layers of agency relationships between the traders using the products and the principals bearing the real economic risk.",
   "abstract": "The principal-agent problem is further exacerbated by hierarchies in financial institutions that often create multiple layers of agency relationships to trade and invest in complex financial products.",
   "citation": "Kaal, Hedge Fund Valuation Retailization, Regulation, and Investor Suitability (2009). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1428387",
   "datePublished": "2009",
   "claim_type": "mechanism",
   "confidence": "argued",
   "is_failure_mode": false,
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    "in banks and large institutions trading complex financial products"
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   "@type": "Claim",
   "@id": "https://wulfkaal.github.io/claims/1428387-024",
   "identifier": "kaal:claim:1428387-024",
   "text": "The issuer-buyer relationship and the incentives inside it are unlikely to be able to adequately control the principal-agent relationship between issuer and rating agency so as to ensure accurate ratings.",
   "abstract": "It seems unlikely that the issuer-buyer relationship and the incentives inherent within could adequately control the principal-agent relationship between issuer and rating agency to ensure accurate ratings.",
   "citation": "Kaal, Hedge Fund Valuation Retailization, Regulation, and Investor Suitability (2009). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1428387",
   "datePublished": "2009",
   "claim_type": "failure",
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    "under the issuer-pays rating model for CDOs"
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   "@type": "Claim",
   "@id": "https://wulfkaal.github.io/claims/1806252-031",
   "identifier": "kaal:claim:1806252-031",
   "text": "Banks' role in monitoring hedge funds is not easily comparable to the principal agent problem between securities buyers and credit rating agencies, because banks have more influence over hedge funds than securities buyers have over rating agencies and their ratings.",
   "abstract": "Banks have perhaps more influence over hedge funds than buyers of securities over credit rating agencies and their ratings.",
   "citation": "Kaal, Hedge Fund Regulation Via Basel III (2011). SSRN: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1806252",
   "datePublished": "2011",
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   "@type": "Claim",
   "@id": "https://wulfkaal.github.io/claims/1908473-010",
   "identifier": "kaal:claim:1908473-010",
   "text": "Contingent capital offers only limited protection against information asymmetries, principal and agent conflicts, and collective action problems, so it cannot by itself prevent economic failure.",
   "abstract": "Contingent capital can only limitedly protect against information asymmetries, principal/agent issues, and collective action problems.",
   "citation": "Wulf A. Kaal, Christoph Henkel, Contingent Capital with Sequential Triggers (2011). SSRN: https://ssrn.com/abstract=1908473",
   "datePublished": "2011",
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   "text": "Existing proposals for implementing contingent capital do not explain how they would address the information asymmetries and principal and agent problems that may lie at the core of the credit crisis.",
   "abstract": "Although contingent capital has many beneficial attributes, existing proposals for implementing contingent capital are unclear as to how they will address information asymmetries and principal/agent problems.",
   "citation": "Wulf A. Kaal, Christoph Henkel, Contingent Capital with Sequential Triggers (2011). SSRN: https://ssrn.com/abstract=1908473",
   "datePublished": "2011",
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    "Assumes information asymmetries and principal agent problems were central causes of the crisis"
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   "@type": "Claim",
   "@id": "https://wulfkaal.github.io/claims/2097160-006",
   "identifier": "kaal:claim:2097160-006",
   "text": "Analyzing executive compensation as a single contract between an executive agent and a corporate principal fails, because it ignores the informal relational element of the principal agent relationship that often overshadows the legal terms of the agreement.",
   "abstract": "Using a model for the analysis of executive contracts that is based on the single contract between the executive–agent and corporation–principal would ignore the informal relational element of this principal– agent relationship.",
   "citation": "Wulf A. Kaal, Contingent Capital in Executive Compensation (2012). SSRN: https://ssrn.com/abstract=2097160",
   "datePublished": "2012",
   "claim_type": "failure",
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   "@type": "Claim",
   "@id": "https://wulfkaal.github.io/claims/2097160-007",
   "identifier": "kaal:claim:2097160-007",
   "text": "Control rights in executive compensation contracts cannot sufficiently constrain ex post opportunism by executives, because of incomplete information, information asymmetry, bounded rationality, limited foresight, and transaction costs.",
   "abstract": "bounded rationality of contracting parties, the parties' limited cognition and foresight, and transaction costs, control rights in executive compensation contracts cannot account sufficiently for ex post opportunism of agents.",
   "citation": "Wulf A. Kaal, Contingent Capital in Executive Compensation (2012). SSRN: https://ssrn.com/abstract=2097160",
   "datePublished": "2012",
   "claim_type": "failure",
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   "identifier": "kaal:claim:3441904-003",
   "text": "Because blockchain guarantees prevent any participant from circumventing the coded set of governance rules, a lower level of oversight and monitoring of agents is needed, which changes the cost structure of the principal agent relationship.",
   "abstract": "Hence, in the blockchain infrastructure, a lower level of oversight and monitoring of agents changes the cost structure of the principal agent relationship.",
   "citation": "Wulf A. Kaal, Blockchain-Based Corporate Governance (2019). SSRN: https://ssrn.com/abstract=3441904",
   "datePublished": "2019",
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   "@id": "https://wulfkaal.github.io/claims/3782210-040",
   "identifier": "kaal:claim:3782210-040",
   "text": "The Maghribi traders show that reputation alone can sustain a decentralized network under extreme information asymmetry: using only handwritten letters, Jewish merchants built a reputational system spanning the Silk Road in which nothing but the promise of better reputation deterred agents from cheating.",
   "abstract": "Nothing incentivized the agents from cheating except the promise of building better reputation.",
   "citation": "Craig Calcaterra, Wulf A. Kaal, The Importance of Reputation for the Evolution of Decentralization (2021). SSRN: https://ssrn.com/abstract=3782210",
   "datePublished": "2021",
   "claim_type": "empirical",
   "confidence": "evidenced",
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    "historical trading networks with communication latency on the order of months",
    "agents with complete control of assets"
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   "text": "Elected representatives are incentivized to maintain their own power of office rather than to vote for outcomes reflecting the presumptive wishes and needs of their constituents.",
   "abstract": "Voted representatives are not incentivized to vote for outcomes that reflect the presumptive wishes and needs of their constituents but for maintaining their own power of office.",
   "citation": "Wulf A. Kaal, How Decentralized Systems Can Upgrade AI (2021). SSRN: https://ssrn.com/abstract=3808867",
   "datePublished": "2021",
   "claim_type": "failure",
   "confidence": "asserted",
   "is_failure_mode": true,
   "scope_conditions": [
    "representative democracies"
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   "@id": "https://wulfkaal.github.io/claims/3808873-042",
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   "text": "A decentralized human backstop to code is a core and often overlooked infrastructure requirement, because without it the immutability of the blockchain and its cryptographic security may not create genuine transactional guarantees or trust between principals and agents in the integrity of their contractual relationship.",
   "abstract": "Without a decentralized human backstop to code, the immutability of the blockchain and its cryptographic security systems may not be able to create truly transactional guarantees and trust between principals and agents in the integrity of their contractual relationship.",
   "citation": "Wulf A. Kaal, Decentralization Neutralizers (2021). SSRN: https://ssrn.com/abstract=3808873",
   "datePublished": "2021",
   "claim_type": "design",
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    "decentralized algorithmic systems mediating principal agent contractual relationships"
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   "@id": "https://wulfkaal.github.io/claims/3949098-018",
   "identifier": "kaal:claim:3949098-018",
   "text": "Meaningful reputation in a business network removes the need for monitoring cost and lowers transaction costs by orders of magnitude.",
   "abstract": "Reputation removes the need for monitoring cost. It lowers transaction costs in orders of magnitude.",
   "citation": "Wulf A. Kaal, Reputation as Capital – How DAOs Upgrade Finance (2021). SSRN: https://ssrn.com/abstract=3949098",
   "datePublished": "2021",
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    "meaningful reputation exists in the business network"
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   "@id": "https://wulfkaal.github.io/claims/3949098-021",
   "identifier": "kaal:claim:3949098-021",
   "text": "Traditional underwriting also fails at the agent level, because individual agents within an underwriter may sacrifice the underwriter's overall reputation for personal gain, for example by putting out a fraudulent offering.",
   "abstract": "individual agents within an underwriter may decide to sacrifice the underwriter's overall reputation for personal gain.",
   "citation": "Wulf A. Kaal, Reputation as Capital – How DAOs Upgrade Finance (2021). SSRN: https://ssrn.com/abstract=3949098",
   "datePublished": "2021",
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   "identifier": "kaal:claim:3949098-022",
   "text": "In the theoretical model, the incentive design of decentralized reputation staking governance aligns the individual with the group so tightly that the agent cannot gain personally at the expense of the principal.",
   "abstract": "aligns the interests of the individual with the interest of the group. In other words, the incentives of the principal, e.g. the group, and the individual are aligned so much that the agent cannot gain personally at the expense of the principal.",
   "citation": "Wulf A. Kaal, Reputation as Capital – How DAOs Upgrade Finance (2021). SSRN: https://ssrn.com/abstract=3949098",
   "datePublished": "2021",
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   "@type": "Claim",
   "@id": "https://wulfkaal.github.io/claims/3962614-014",
   "identifier": "kaal:claim:3962614-014",
   "text": "Because traditional VCs need to defend their investment choices to their own investors, they are often reluctant to invest in digital asset startups that have little history or sales records.",
   "abstract": "Traditional VCs are often also not able to effectively invest in the digital asset market because they need to defend their investment choices to their own investors. Because of that, traditional VCs are often reluctant to invest in digital asset startups with little history or sales records.",
   "citation": "Wulf A. Kaal, REPUTATION AS CAPITAL – How Decentralized Autonomous Organizations Address Shortcomings in the Ventu (2021). SSRN: https://ssrn.com/abstract=3962614",
   "datePublished": "2021",
   "claim_type": "mechanism",
   "confidence": "argued",
   "is_failure_mode": false,
   "scope_conditions": [
    "traditional VCs accountable to limited partners"
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  },
  {
   "@type": "Claim",
   "@id": "https://wulfkaal.github.io/claims/4067783-030",
   "identifier": "kaal:claim:4067783-030",
   "text": "Traditional work in centralized structures is prone to extrinsically motivated engagement, which intensifies principal agent problems and produces suboptimal outcomes because a principal dictates where, what, and when workers perform.",
   "abstract": "The traditional work environment in centralized structures is prone to extrinsically motivated work engagement which intensifies principal agent problems.",
   "citation": "Wulf A. Kaal, DAO Fallacies (2022). SSRN: https://ssrn.com/abstract=4067783",
   "datePublished": "2022",
   "claim_type": "mechanism",
   "confidence": "argued",
   "is_failure_mode": true,
   "scope_conditions": [
    "centralized employment structures with a directing principal"
   ],
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   "@type": "Claim",
   "@id": "https://wulfkaal.github.io/claims/5886442-032",
   "identifier": "kaal:claim:5886442-032",
   "text": "Principal agent frictions reemerge in new forms in the agentic economy, as user sovereign bring your own agents compete with platform controlled bowling shoe agents, creating incentives for proprietary enclosure and interoperability throttling.",
   "abstract": "Principal-agent frictions reemerge in new forms: user-sovereign \"bring-your-own\" agents compete with platform-controlled \"bowling-shoe\" agents, creating incentives for proprietary enclosure and interoperability throttling",
   "citation": "Wulf A. Kaal, The AI-to-AI Economy and the Collapse of Anthropocentric Economic Theory (2025). SSRN: https://ssrn.com/abstract=5886442",
   "datePublished": "2025",
   "claim_type": "failure",
   "confidence": "argued",
   "is_failure_mode": true,
   "scope_conditions": [
    "arises where agent platforms are controlled by intermediaries rather than by users"
   ],
   "source_pdf_sha256": "d2f6edebc562152f6ea706cc3ad944f7a1b81979931571e54cb782849839dfce",
   "status": "current"
  }
 ],
 "description": "17 claims in the published works of Wulf A. Kaal carry the concept tag 'principal-agent'. Derived node: a roster, not an adjudicated definition."
}