The venture capital firm is one financial intermediary in our financial system that aids in lowering the moral hazard that results from the principal-agent problem.
A conflict of interests between a person or group and the agent appointed to act on their behalf is known as the principal-agent problem. It is possible for an agent to take actions that are not in the principal's best interests.
As varied as the principle and agent tasks are, so too is the principal-agent problem. It can happen in any circumstance where the principal or owner of an asset transfers direct control of the asset to a third party or agent.
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