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The problem of principle agent occurs when it is agreed by one party (that is the agent) to function in support of the other party (that is the principle) in return for certain incentives. Huge costs may be incurred by such a contract for the agent. This causes interest conflict and moral hazards problems. The problem occurs when an environment is created by a principal where incentives of agent aren’t aligned with the incentives of the principle. The onus is generally on the principal for incentives to be created for the agent in order to make sure that they function as wanted by the principal.