For each of the following examples, explain who is the principal, who is the agent, and what aspects of their interaction are of interest to each and are not covered by a complete contract:

1. A company hires a security guard to protect its premises at night.
2. A charity wants to commission research to find out as much as possible about a new virus.
Select all answers that apply:

The researcher may have a personal agenda( to publish or to pursue long term research projects) that may not perfectly align with the charity’s research agenda (immediate practical solutions for the virus)

a. The guard and researcher are the principals

For both these cases, the principal would want to make explicit in the contract the amount of effort or output that they expect from the agent.

a. The guard and researcher are the agents
b. The company and the charity are the agents
c. The company and the charity are the principals.

The company can state the duration and number of breaks the guard can take, which parts of the premises the guard should patrol, and specify security checks to carry out( such as checking whether doors are locked), it is impossible to verify these duties. Less tangible ones such as diligence in undertaking the tasks is also impossible to verify and cannot be written in a contract.