Agency theory: Forecasting agent remuneration at insurance companies

Abstract

The principal–agent problem occurs when one entity (the ‘‘agent’’), is able to make decisions and/or take actions on behalf of another person or entity (the ‘‘principal’’). The agent earnings are regulated under a contract designed by the principal. Under the principal’s point of view, the main goal while designing said contract (and the payment rules incorporated on it) is to align the actions made by the agent to the principal’s own goals. So, in this paper we will define a method that will allow the principal to forecast the remuneration obtained by the agent under an established contract in the insurance sector.