Blog Post Due 11/6 Principal Agent Problem

In the NBA, the head coach is commonly involved in recruiting free agents to their team. This is a perfect example of the triangle principal agent problem. Here, the coach is both a principal to the player and to the owner of the team. He is an principal to the player because he needs to tell him exactly what to expect in regards to play time and strategy when he joins the team. He is also is a principal to the owner of the team because he wants to attract the best talent to create the best team.

Problems can arise when the player wants more minutes or more of a role in the game plan, but the owner wants the player to enhance his team or to attract the talent to sell tickets. Here, the coach is stuck with the choice of possibly lying to the player to attract him to the team on false pretenses, however this could result in the inability to attract future players who knows he is not honest, or disobeying his owner and being honest with the player about his role on the team, which could lose him his job.

In this situation, the most likely scenario would be that he lies to the player about his role. This way he secures his position as the head coach with the owner, he betters his team, but he angers the other agent in the scenario. In this specific situation, I can’t think of another solution to the problem, unless the owner changes his mind in regards to the player, that leaves both agents happy and secures the head coach his job. The principal could fail if he does not satisfy both agents. In this situation, he could get fired as job from the head coach if he disobeys the owner. However, if he upsets the player, he could get less than 100% effort, which would hurt his team.