The Agency Problem of the Modern Era – The Conflict Between Shareholders’ and Managers’ Motives to Invest in Happiness

In recent years, there has been increasing emphasis on firms’ investment in happiness and the associated benefits of doing so. In this paper, we discuss the agency problem regarding investments in happiness. The agency problem occurs when managers’ motivations for investing in happiness differ from shareholders’ motivations, leading to a conflict of interests that affects every key corporate decision. To investigate this problem, we propose a theoretical framework that integrates financial incentives with behavioral aspects, and use it to analyze the decision-making process of managers and shareholders. We also provide a detailed account of their anticipated benefits and utilities arising from investing in happiness. We explain the financial implications of the value gap that results from the inherent conflict of interests and provide appropriate solutions for reducing the gap in a variety of circumstances.