The figures and text in this appendix are adapted from Murthy and Jack (2014), pp. 85–86, with the permission of Springer.
Agency theory attempts to explain the relationship that exists between two parties (a principal and an agent) where the principal delegates work to the agent, who performs that work under a contract. This is exactly the case where one is looking at service agent fraud. The warranty provider is the principal delegating the warranty servicing to a service agent.
Agency theory is concerned with resolving two problems that can occur in principal–agent relationships. The first issue arises when the two parties have conflicting objectives, and it is difficult or expensive for the principal to verify what the agent is actually doing and whether the agent has behaved appropriately. The second issue is the risk sharing that takes place when the principal and the agent have different attitudes to risk (due to various uncertainties). Each party may prefer different actions because of their different risk preferences.
The different issues that are involved in agency theory are indicated in Figure B.1 and discussed briefly in this appendix.1
Moral hazardThis refers to the agent's possible lack of effort in carrying out the delegated tasks and the fact that it is difficult for the principal to assess the effort ...
Become an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month, and much more.
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.
Julian F.
Head of Cybersecurity
I wanted to learn C and C++, but it didn't click for me until I picked up an O'Reilly book. When I went on the O’Reilly platform, I was astonished to find all the books there, plus live events and sandboxes so you could play around with the technology.
Addison B.
Field Engineer
I’ve been on the O’Reilly platform for more than eight years. I use a couple of learning platforms, but I'm on O'Reilly more than anybody else. When you're there, you start learning. I'm never disappointed.
Amir M.
Data Platform Tech Lead
I'm always learning. So when I got on to O'Reilly, I was like a kid in a candy store. There are playlists. There are answers. There's on-demand training. It's worth its weight in gold, in terms of what it allows me to do.
O’Reilly covers everything we've got, with content to help us build a world-class technology community, upgrade the capabilities and competencies of our teams, and improve overall team performance as well as their engagement.