Principal-Agent Theory

This paper will define, describe, and discuss principal-agent theory. Evaluate it according to its usefulness in public administration. Describe and discuss the Whistleblower Fired for Exposing the Truth video. Discuss how and why principal theory applies to the whistleblower's story. It will also evaluate principal-agent theory for its applicability as a theory, analyze the effects it can have on the Rehabilitation Services Commission and discuss whether principal-agent theory is useful in public administration.

Principal – agent theory according to Van Slyke (2007) is a theoretical framework for structuring and managing contract relationships and to explain the behaviors of the principal and the agent. This theory focuses on accountability and the basis of it is initial distrust of the agent by the principal. There are two problems that principal agent theory seeks to address. The two problems are: when the goals of the principal and agent are conflicting and when the agent has more knowledge than the principal. In the latter the agent is able to exploit their knowledge and the principal is unable to check up or verify the information due to lacking the staff to do so or because doing so would be too costly.
An example of principal –agent theory in action is the State vocational rehabilitation program. This program is administered by the Rehabilitation Services Commission (RSC) which makes them the principal. RSC contracts with various community rehabilitation programs (CRPs) that specialize in providing vocational rehabilitation services. This makes them the agent. In my capacity as a Vocational Rehabilitation Counselor (VRC) for RSC, it is very difficult to gauge the quality and quantity of services provided to the consumers I work with by CRPs but if they submit billing and a report for services, policy states I must release payment to them. In my opinion many of the CRPs inflate their service hours and recommend other services...