Economic Analysis of Agency Law – Episode 5: When Trust Breaks Down

In Episode 5 of Season 3, Professor Seth C. Oranburg explores the dramatic fallout when fiduciary duties are breached. Using the whimsical yet cautionary tale of Hotch Hotch—where a Watcher named Sylvester McMonkey McBean exploits the system for personal gain—Professor Oranburg illustrates how a single breach of loyalty can trigger cascading economic disruptions. He breaks down key concepts such as moral hazard and residual loss, showing how breaches not only shatter trust but also inflate transaction costs and destabilize delegation systems. Drawing parallels with real-world examples like the Enron scandal, this episode highlights the profound implications of fiduciary failures and discusses strategies to repair and prevent such breaches. Tune in to learn how accountability, strengthened monitoring, and aligned incentives are essential for maintaining efficient and trustworthy agency relationships.