“Aloha Releasing” wants to expand its genre offering. To that end, they want to hire a well-known action director. Aloha’s problem is that they want to ensure that the studio and director’s incentives are well aligned. Which of the following cleaving framework is an appropriate tool to solve this problem
- Principal / Agent
- Collaborate / Compete
- Equality / Liberty
- Supply / Demand
The appropriate framework to address Aloha Releasing’s challenge of aligning the incentives between the studio and a well-known action director is the Principal / Agent framework. This framework is used to analyze situations where one party (the principal) delegates work to another party (the agent), who performs that work on behalf of the principal. In this case:
The principal-agent framework helps in identifying and resolving issues that might arise due to the differing objectives of the principal and the agent or due to information asymmetry, where the agent might have more information about the job than the principal. Common strategies to align incentives include performance-based compensation, profit sharing, or other contractual agreements that tie the director’s rewards directly to the success of the action films produced under their direction. This approach ensures that both parties’ interests are aligned towards the mutual success of their projects.