The Principal Agent Problems And Optimal Mudarabah Contract

Abstract

The principal-agent (agency) problems in mudarabah contract are severe without effective delegation of information between the contracting parties. Disclosure of information by an agent can help to reduce asymmetric information and generate sound decision by both contracting parties in the financing and securities investment based on the mudarabah contract. This study will explore the evolutionary learning of the contracting parties in improving their decision making process. The principal and agent can make their decisions based on individual learning or social learning (through shura or mutual consultation) to generate profit. Therefore, the objectives of this study are; first, to theoretically establish mudarabah contract in Islamic banking model that utilizes individual learning based on the principal-agent theory.