This video simulation on power asymmetry and principal agent dynamics by Professor Lawrence Susskind and Robert Wilkinson was designed to give students insights into the challenges surrounding difficult conversations, both with people across the table, as well as with people on their own side.
… Read Power Asymmetry and the Principal Agent Problem
Learn how to negotiate like a diplomat, think on your feet like an improv performer, and master job offer negotiation like a professional athlete when you download a copy of our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.
principal agent theory
What is Principal Agent Theory?
Though agents can be indispensable in certain contexts, their role can be fraught with peril for the principal, as principal agent theory suggests.
Principal agent theory, which emerged in the 1970s from a number of economists and theorists, describes the pitfalls that often arise when one person or group, the “agent,” is representing another person or group, known as the “principal.”
There are three distinct advantages of hiring an agent to negotiate for you:
- When you’re unsure of the issues under discussion or the rules of the game, you’d be wise to seek out an experienced agent.
- When you don’t have the time to meet with potential partners in a distant location or participate in every step in the process, you’re unlikely to represent yourself well.
- You have a poor relationship with your negotiating partner.
Despite these drawbacks, principal agent theory also points out three ways in which agents may differ from their principals.
- The agents may have different preferences from their principal, such as willingness to work.
- Agents may have different incentives from the principal, because they may have a different stake in the outcome or may receive different rewards than the principal.
- Agents may have information that is unavailable to the principal, or vice versa. These types of divergences may give rise to problems relating to monitoring, incentives, coordination, and strategy.
Learn how to negotiate like a diplomat, think on your feet like an improv performer, and master job offer negotiation like a professional athlete when you download a copy of our FREE special report, Negotiation Skills: Negotiation Strategies and Negotiation Techniques to Help You Become a Better Negotiator, from the Program on Negotiation at Harvard Law School.
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The following items are tagged principal agent theory:
Streaming Toward Win-Win Negotiation: Spotify Upgrades Its Negotiating Strategy
Win-win negotiation proved elusive for Spotify in 2006 negotiations with Taylor Swift. Seeming to have learned from that episode, the streaming service recently negotiated changes to its revenue-sharing model that content providers widely praised.
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How to Balance Your Own Values in Negotiation
What are the best negotiation examples from real life? Imagine that you’ve been negotiating the sale of a property that is owned by your company. The buyer has made an attractive offer that you’ve tentatively accepted. Your boss is pleased with the terms as they stand, but suggests that you go back to the buyer … Read How to Balance Your Own Values in Negotiation
Understanding the Negotiation Skills You Need to Negotiate with Friends and Family
Who achieves the best negotiated agreements: strangers, friends, or romantic partners? In a 1993 negotiation role-play simulation, Margaret Neale of Stanford University and Kathleen McGinn found that pairs of friends achieved higher joint gains than married couples and pairs of strangers.
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How Principal Agent Theory Works in Business Negotiations: Dealmaking Strategies for Bargaining with Agents
The Program on Negotiation has identified three basic sets of circumstances in business negotiations where you’ll be better off tapping an agent (see also principal-agent theory) to take your place at the bargaining table (at least for part of the negotiating process):
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What Can Business Negotiators Learn from Principal Agent Theory?
Learn how to navigate the principal-agent relationship with these insights from negotiation research.
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Communicate Your Interests Behind the Deal
As integrative negotiations students know well, focusing on interests in negotiation has proven to be the most reliable way to create value and resolve conflicts. Experience indicates that communicating with your lawyers the motivations behind a deal or negotiated agreement is well worth the time.
… Read Communicate Your Interests Behind the Deal
Negotiation Strategies: Seek Advice from Others When Negotiating
Negotiation skills in business communication and seeking advice from others, what are the potential benefits? Advice seeking inherently employs multiple self-presentation tactics (including ingratiation, self-promotion, and supplication), it allows us to improve both our competence and our likability.
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The Impact of Anxiety and Emotions on Negotiations
Intense negotiation scenarios, we often choose to consult an expert for advice, preferably someone who has carried out hundreds of similar deals with great success. When we consult with others on our negotiations, we must weigh their advice against our own opinions and research. Past negotiation research finds that we tend to undervalue advice from … Read More
How to Avoid Preparing Unethical Negotiation Plans
To what degree should you level the playing field for your counterpart in negotiations? Let’s turn to the question of whether you have an ethical obligation to educate an uninformed buyer.
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What Does Conflict Management Mean in Business Negotiations with Competitors?
They say it pays to keep your friends close and your enemies closer, but in business negotiation, keeping your enemies—or competitors—close could end you up in court, as Apple’s recent encounter with the U.S. Department of Justice suggests.
The story begins back in 2007 when, unhappy with Amazon’s low, flat price of $9.99 for e-books, five … Read More