By analyzing the case of Ryanair mistreating its employees and applying relevant economic theory, it is clear that agency theory is at play here. An agency relationship consists of an agreement under which one party, the principal, engages another party, the agent, to perform a service on behalf of the principal. (Brickley, Smith) In this case, Michael O'Leary would be the principle and the agents the pilots. Ideally, the incentives of principles and agents would be aligned. However, in this scenario, the agents/pilots had unfair contracts and had to pay for their own training. This compensation was deemed insufficient for the pilots and Ryanair's public image suffered. Say no to plagiarism. Get a tailor-made essay on “Why violent video games should not be banned”?Get an original essayUsing agency theory, we can infer that Michael O'Leary seeks to maximize profits for personal gain, c That is, he will receive a bonus if certain financial conditions are met. the objectives are achieved. Agents have their own incentives to protect their well-being if it is threatened, even at the expense of principle. This is clearly evident in the case of Ryanair. We can assume that the reasoning behind the decisions made by those involved as actors in the Principle/Agent relationship hold information about themselves that others could not know. This lack of information between players can be costly for companies. When information is unevenly distributed, those with a higher degree of information may engage in opportunistic behavior. It is unclear why O'Leary chose to hire his pilots in this manner, but he showed complete disregard for their basic needs. Economics is about trade-offs and this is an example of a trade-off between a decent work environment/customer service and maximizing profits. This could also be a way for RyanAir to expand its customer base and this idea is explored in a related article. “Companies are looking to signal that its costs are low and therefore it is attractive for customers to trade with it in the future because their prices will also be low.” (Kyle Bagwell, 1986) It is clear from analyzing Ryanair's problems using agency theory that in order for the airline to continue to operate successfully in the market, things need to change. As explained above, if other airlines are able to offer better contracts to pilots, they will look for worse ones elsewhere, which will not only cause the company to lose money due to flight cancellations . But the constant negative publicity surrounding the company won't become a thing of the past. Ryanair must pay its employees properly or its rivals will benefit. Paying this extra money may not benefit Ryanair in the short term, but in the long term. can develop a new image for themselves. Ryanair could also spend more money on properly training not only its pilots, but also its flight attendants, to ensure that incidents like the video that went viral last week are avoided in the future. If a boycott does indeed take place, it could cost Ryanair millions, proving once again that spending money in the short term and improving their image will save them money in the long term. After thinking about the economic theory used in this case study, it is clear that VW's management and ownership structure makes it "reasonable to adopt an economic theory perspective."..