The principal-agent problem was first written about in the 1970s by theorists from the fields of economics and institutional theory. Michael Jensen of Harvard's Business School and William Meckling of the University of Rochester published a paper in 1976 outlining a theory of ownership structure that would be designed in such a way as to avoid what they defined as agency cost and it's relationship to the issue of separation and control.
These issues are central to the principal-agent problem. The separation of control occurs when a principal hires an agent, and the costs that the principal incurs while dealing with an agent can be defines as agency costs. These agency costs can come from setting up monetary or moral incentives set up to encourage the agent to act in a particular way.
Read more: Principal-Agent Problem Definition | Investopedia http://www.investopedia.com/terms/p/principal-agent-problem.asp#ixzz3tmm4qQzO
