The Principal-Agent Problem occurs when one party, the principal, hires another party, the agent, to perform tasks on their behalf. The challenge arises because the interests of the principal and agent may not align. For example, the principal wants to maximize profits, while the agent may prioritize personal gain or job security, leading to potential conflicts. This problem is common in various settings, such as in business relationships, where shareholders (principals) employ managers (agents). To mitigate these issues, principals often implement incentives or monitoring systems to ensure that agents act in the best interest of the principals.