Part I: Describe an example you have experience with of the principal-agent problem (for example, you have a desire for your children to listen in school and do well, while for them, goofing off at school might be much more fun), and explain how incentives can be used to overcome the principal-agent problem (such as paying your children for good grades). Include in your explanation an analysis of the risks in using incentives.
Part II: How will you be able to apply what you learned in this course to your current or future work?
REPLY TO MY CLASSMATE’S RESPONSE TO THE ABOVE QUESTIONS AND EXPLAIN WHY YOU AGREE? (A MINIMUM OF 100 WORDS)
CLASSMATE’S POST
One example of the principal-agent problem of my experience is in the organizational setting. It is regarding the salespeople who are only focused upon meeting the bare minimum targets and afterward, they spend their time on non-productive activities and not thinking about the organization’s best interests. Here, salespeople are working as an agent who is not focused upon what is best for the organization and its shareholders. It creates a principal-agent problem where agents are working with different objectives to what is pursued by the principal. 
To resolve this problem, there are different techniques. The first technique is to give higher incentive % when the sales volume increases and there is no upper limit to the sales volume. It will encourage the salespeople to sell more and earn more incentives, while total revenue for the organization also increases. It helps to solve the problem of principal-agent. Though there are some risks associated with it. The first risk is to adopt unethical ways to sell the products and harm the company’s image. The second risk is to sell those products only that can bring higher incentives to them. The third risk is to take care of their own benefits, rather than thinking about value creation for the customers. These risks harm more to the organization in the long term.
Part 2
I am currently working at a tech company and I plan to get into a health care role and work my way into management. This class is going to give me a better understanding of how the world of economics connects to every business and how money is made. Government policies are also a huge impact on many businesses, and I am glad that I learned that.
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