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Part of obtaining a University Economics degree is to
understand a concept called ‘Moral Hazard’. A moral hazard occurs when the
actions of one party change to the detriment of another, after a financial
transaction has taken place. Another aspect of moral hazard is the
‘Principal-Agent Problem’. This is where one party, called an Agent, acts on
behalf of another party, called the Principal. These concepts highlight a
dilemma—how to motivate an Agent to act in the best interests of the Principal,
rather than in their own best interests.
It’s a dilemma we face throughout New Zealand when we
Principals (Voters) attempt to get our Agents (Councillor’s) to turn up to
Council meetings—something we expect of them, given we remunerate them
accordingly, in the hope our city will
be managed in the most effective way possible. The problem is that when one or
more of these Councillors don’t take full responsibility for the consequences
of their actions (or inactions in this instance), this leaves other Councillors’
to take on more responsibility for the decisions that are made. It may also
mean that there is less diverse thought and scrutinizing involved in the
decision making process. It also means that voters feel ‘screwed’, to put it in
colloquial terms.






