Incentives and Agency Conflict Simulation

Balance ethical and beneficial decisions in the Incentives and Agency Conflict Simulation. Navigate trade-offs, incentive structures and potential conflicts inherent to real life when interests collide.

Incentives and Agency Conflict Simulation Overview

This immersive simulation enables participants to assume roles across a spectrum of stakeholder relationships (boards and executives, investors and fund managers, or owners and management teams) and to navigate how incentives, information asymmetry and organisational design shape behaviour.

Through sequential rounds, participants confront scenarios such as bonus schemes, risk-taking incentives, monitoring and control mechanisms, and the tensions that arise when agents pursue their own interests rather than the principal’s.

Much like other advanced simulations in finance, M&A or investment banking, this one encourages decision-making under uncertainty, stakeholder pressure and evolving performance metrics. Participants will make strategic decisions, respond to the behaviour of other parties, and reflect on how incentive design and governance affect outcomes.

Incentives and Agency Conflict Simulation Concepts

Participants work through realistic scenarios, which can be customized to emphasize or exclude specific topics depending on the learning goals. This modular structure allows the simulation to be tailored to any type of session. Key concepts include:

Principal–agent relationship
Incentive alignment vs. misalignment
Information asymmetry
Agency cost
Monitoring and control mechanisms
Risk-taking and moral hazard
Reward systems and behavioural effects
Governance and contract design
Stakeholder dynamics
Decision-making under uncertainty

Gameflow

What Participants Do

In the simulation, participants will:

Review organisational context, contract terms, historical performance, risk profile, stakeholder expectations
Make strategic operational decisions, choosing how much risk to take
Negotiate contract amendments, monitoring intensity or disclosure policies
Make deals while being presented with tasks that push for personal gain or in principal’s best interest
Design incentive schemes, choose performance metrics, reward timings, monitoring frameworks and governance structures
Navigate the push and pull of different power dynamics between principals and agents

Learning Objectives

By the end of the simulation, participants will be able to:

Understand the principal–agent framework and why agency conflicts arise.
Recognise how incentive design and reward structures can drive agent behaviour.
Analyse the impact of information asymmetry and monitoring limitations on organisational performance.
Evaluate different contract and governance mechanisms for aligning agent and principal interests.
Make decisions about risk-taking, reporting, transparency and stakeholder trade-offs in an agency context.
Communicate effectively between principals and agents, negotiate contract terms and adjust governance frameworks.
Develop a mindset of designing incentives not just for performance, but for alignment, accountability and long-term value creation.

How the Incentives and Agency Conflict Simulation Works

This simulation can be run individually or in teams in academic or corporate contexts.

1. Identify the tasks and stakes Participants receive a scenario background, role descriptions (principal, agent, board, auditor), tasks contract terms and organisational context.

2. Tasks Execution Agents propose operational plans, risk levels and request incentive schemes; principals (or boards) evaluate proposals, design contract/incentive packages, set monitoring protocols.

3. Strategy adjustments Agents may alter strategy, principals/boards may amend incentive structure or tighten oversight.

4. Outcome & Performance Metrics The simulation calculates outcomes (return on investment, risk exposure, etc) and presents them to participants. Agents may use different metrics to present those outcomes to principals.

5. Present to the Principals Agents present their decisions, defend their rationale all while principals assess the outcomes.

6. Review and Reflect Feedback highlights participants’ flexibility, ability to communicate clearly, and strategic thinking under the pressure.

Frequently Asked Questions

Who is this Incentives & Agency Conflict Simulation designed for? This simulation is ideal for business schools, executive education programmes, corporate training for management and governance teams, HR learning & development, and boards seeking to deepen their understanding of incentive alignment and agency risk.
Do participants need prior knowledge of agency theory or incentives? No prior specialist knowledge is required. The simulation provides the conceptual foundation and is designed for multi-level audiences. Facilitators can tailor the depth and technicality to suit beginners or senior executives.
How long does the simulation run? The typical format is 3–4 hours, including briefing, two decision rounds, event trigger, results review and debrief. It can also be condensed to a shorter module or expanded into a full-day workshop with additional rounds and complexity.
Can the simulation be delivered in teams or individually? Yes, participants can work individually or in teams representing a principal and a set of agents. The team-based format enhances negotiation, stakeholder interaction and governance dynamics.
Is the scenario industry-specific or general? The scenario framework is general and can be adapted to a variety of industries (corporate finance, investment management, non-profit governance, startups). Organisations or instructors may customise the context, complexity and metrics to their specific sector.
Can the incentive structures and parameters be customised? Absolutely. You can tailor performance metrics, reward schemes (fixed salary, bonuses, equity), monitoring intensity, stakeholder expectations and risk-profiles to match your learning objectives.
What roles does this simulation prepare participants for? It prepares participants for roles such as management teams, boards of directors, investor relations, internal audit, HR incentive design, corporate governance committees, and strategic decision-makers.
How is participant performance assessed? Performance is assessed across multiple dimensions: operational performance (returns, risk), degree of alignment (agent behaviour vs principal interests), quality of incentive/governance design, responsiveness to events and stakeholder dynamics, and communication/negotiation effectiveness.
Why is incentive and agency conflict training important? Because misaligned incentives and poorly governed principal–agent relationships can lead to significant organisational risk, poor performance, reputational damage or value destruction. Learning to design, monitor and govern agent behaviour yields real-world strategic benefit.

Assessment

To evaluate participant learning and performance, the simulation includes an assessment component which can be tailored to educational or corporate environments. Typical assessment criteria include:

Ability to design incentive schemes that align agent behaviour with principal objectives.
Appropriate oversight, reporting and control mechanisms given the risk profile and scenario context
Effectively in deploying strategies, make risk-reward trade-offs, and adapt to events?
The abikity to alignt agent' actions with principal interests
Negotiating contract terms, communicating with stakeholders and managing divergent interests
Participants may evaluate their own and peers’ performance on collaboration, leadership, negotiation and decision-making behaviours.