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Agency Theory revolves around a few key concepts. Firstly, there's the idea of **information asymmetry**. The agent often has more information than the principal, which can create opportunities for the agent to take advantage. Secondly, there's the issue of **opportunistic behavior**. Agents might be tempted to act in ways that benefit themselves, even if it harms the principal. Finally, **risk aversion** plays a role. Principals, who bear the ultimate risk, might want to closely monitor the agent's actions and put in place mechanisms to align their interests. The core idea here is that people are inherently self-interested and will act to maximize their own utility, sometimes at the expense of others. In this framework, **corporate governance** becomes a game of control, involving contracts, incentives, and monitoring systems to ensure that agents are behaving as expected.
