Principal-Agent Problem

Biological Parallel

Legume plants (principals) provide sugars to rhizobial bacteria (agents) in exchange for nitrogen fixation, but face a classic principal-agent dilemma: bacteria that cheat by consuming resources without fixing nitrogen gain advantage. Plants evolved 'host sanctions'—they detect low-performing nodules and cut off their resource supply, starving cheaters. This biological monitoring and punishment system emerged because the cost of verification (measuring nitrogen output) is lower than the cost of widespread cheating, paralleling corporate audit functions.