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Residual Risk

The AI Agent Economy Cannot Be Trusted: What Agency Theory Teaches, and Where Runtime Authority Needs a Different Instrument
reading time: 21 minutes
The AI Agent Economy Cannot Be Trusted.
Economics offers incentives, monitoring, delegation and control. Runtime software can also make some invalid authority states rejectable at the receiving boundary.

Economics has studied agency under asymmetric information for more than fifty years. Stephen Ross gave an early formal treatment of the principal-agent problem in 1973. Jensen and Meckling’s 1976 paper defined agency costs and integrated agency theory with property rights and finance to analyze ownership structure. Holmström, Grossman, Hart, Moore, Tirole and many others subsequently developed major parts of contract and organization theory. Work in this broader tradition later received Nobel recognition, including the 2016 prize to Oliver Hart and Bengt Holmström for contributions to contract theory.