ABSTRACT
There are many aspects of markets that are generally hidden from students in introductory textbooks. These deviations from ideal markets are so-called imperfections. I referred to these earlier as the “Achilles heels” of markets. We discuss a few of these in this chapter including “opportunistic behavior” and the problems associated with the fact that most people do not work for themselves but for others. This is the “principal-agent” problem that introduces imperfections into the smooth running of firms because workers (agents) are costly to supervise and because they are not always incentivized properly to exert optimal effort or to use best judgment to advance the firm’s cause. Many CEOs and mortgage brokers took advantage of such opportunities during the run up to the financial crisis to enrich themselves at the detriment of the corporation and the economy.
