The principal-agent problem is the conflict of interest that arises when one party, the agent, is empowered to act on behalf of another, the principal, but the agent’s incentives are not perfectly aligned with the principal’s interests. It typically emerges under information asymmetry, where the agent has knowledge or discretion the principal cannot fully observe or verify. Corporate governance mechanisms such as monitoring, incentive contracts, and disclosure requirements exist largely to mitigate principal-agent problems.