The Principal-Agent Problem Is Fundamental

🧶 Tags:: #literature_Notes
🗃 Resources:: The Almanack of Naval Ravikant (2020)
2026-06-10

To me, the principal-agent problem is the single most fundamental problem in microeconomics. If you do not understand the principal-agent problem, you will not know how to navigate your way through the world.

Julius Caesar famously said, "If you want it done, then go. And if not, then send." What he meant was, if you want it done right, then you have to go yourself and do it.

When you are the principal, you are the owner — you care, and you will do a great job. When you are the agent, you can do a bad job. You optimize for yourself rather than for the principal's assets. The smaller the company, the more everyone feels like a principal. The more closely you can tie someone's compensation to the exact value they're creating, the more you turn them into a principal.