The principal-agent problem is a conflict of interest that occurs when an agent (e.g., an employee) acts on behalf of a principal (e.g., an owner) but pursues their own goals instead of the principal's. This arises from an information asymmetry, where the agent knows more about their actions and their motivations than the principal, and it can lead to agents not acting in the best interest of the principal, even at a cost to the principal.