Research Paper 9 | Behavioural Economics
Mathivation Research Lab Initiative Research Paper 9 The Information Gap: Principal–Agent Dynamics and the Economic Cost of Asymmetric Trust in Institutional Transitions Abstract Institutional transitions often trigger a silent decline in efficiency not because of incompetence, but because of informational imbalance. When leadership changes, authority shifts faster than understanding. This creates a gap between those who govern and those who execute. Using the Principal–Agent framework, this essay examines how asymmetric information, monitoring behaviour, and fear-based compliance reshape institutional productivity. It argues that trust is not a moral virtue but a structural economic variable that reduces agency costs and restores functional alignment. 1. Institutions Do Not Collapse from Lack of Skill - They Collapse from Lack of Trust In most organizations, productivity problems are rarely technical. They are relational. When a new authority enters a system, three realit...