Apply Agency Theory (Jensen and Meckling, 1976) to diagnose principal-agent problems — moral hazard, adverse selection — and design governance mechanisms to align interests.
SkillScore95Maintained
Automatic
◆Finance & Accounting pack
Last verified 8/28/2026
What it changes
Passed 21 of 22 test cases with the skill, and 17 of 22 without it.
Without skill77%
With skill95%
Checks it passed that the model alone missed
The output uses the section header '## Agency Analysis:'.
The response recommends behavior-based monitoring for routine tier-1 support roles.
The response recommends outcome-based alignment mechanisms for exploratory researchers.
and 2 more in the full report
4 fixed17 passed either way1 still failing0 broke
Pass-rate lift
+18 pp
Tokens
+28%
Agent turns
0%
Response time
-8%
Model gemini-3.6-flashMeasured 8/28/2026v121 of 22 cases passed with skill
Tokens, turns and time describe resource use, not a dollar price.
See it in action
One of 4 test cases the skill fixed. Same model, same prompt, with and without the skill.
1 of 4
Prompt
Our board is evaluating the executive compensation plan for our newly hired CEO at a mid-market SaaS firm. Shareholders are worried about short-term profit pushing at the expense of long-term strategic R&D. Can you evaluate this corporate governance tension using agency theory? Please provide your response structured with a table mapping out who delegates to whom and their conflicting goals, a detailed diagnosis of the underlying agency issue and information gaps, a matrix of proposed control mechanisms showing their types and expected impact, and finally a summary section breaking down monitoring, bonding, and residual loss costs.
What was checked, without and with the skill
Checked
Without skill
With skill
The output uses the section header '## Agency Analysis:'.
Missed
Passed
The diagnosis classifies the CEO's incentive to sacrifice long-term R&D as a moral hazard problem.
Passed
Passed
The governance evaluation explicitly addresses minimizing total agency costs.
Passed
Passed
case-01 · gemini-3.6-flash · 8/28/2026 · answers are capped and redacted
What's inside
The instructions your model reads when the skill loads.
SKILL.md101 linessingle file
Agency Theory
Overview
Agency theory addresses the relationship where one party (principal) delegates work to another (agent) whose interests may diverge. Jensen and Meckling (1976) formalized how the separation of ownership and control creates agency costs: monitoring costs, bonding costs, and residual loss.
When to Use
Analyzing owner-manager conflicts in corporate governance
Designing executive compensation and incentive plans
Evaluating board effectiveness and monitoring structures
Assessing governance in franchising, partnerships, or supply chains
Assumptions
IRON LAW: Agency costs are unavoidable — the goal is to minimize
TOTAL agency costs (monitoring + bonding + residual loss).
Eliminating one cost type often increases another. Optimal
governance minimizes the sum, not any single component.
Key assumptions:
Goal divergence — Agents have self-interest that may conflict with principals
Information asymmetry — Agents possess private information
Risk preferences differ — Agents are typically more risk-averse than diversified principals
Methodology
Agency Problem Types
Problem
When
Mechanism
Moral hazard
Post-contract; agent effort is unobservable
Hidden action
Adverse selection
Pre-contract; agent type is unobservable
Hidden information
Hold-up
Post-investment; agent exploits lock-in
Relationship-specific investment
Agency Cost Components
Monitoring costs — Expenses by principal to observe agent behavior (audits, boards, reporting)
Apply the Knowledge-Based View (Grant, 1996) and Nonaka and Takeuchi's SECI model to analyze how organizations create, transfer, and integrate knowledge for competitive advantage. Use this skill when the user needs to design knowledge management systems, understand why knowledge transfer fails across teams, evaluate knowledge creation processes, or when they ask 'how do we capture tacit knowledge', 'why does knowledge stay siloed', or 'how can we turn individual expertise into organizational cap