Resolving Principal–Agent Misalignment in Decentralized Corporate Governance: A Mechanism Design Approach to Incentive Contracting Under Asymmetric Information

Abstract

Principal–agent misalignment remains a persistent structural inefficiency in decentralized corporate governance frameworks, particularly where information asymmetry between shareholders and executive management distorts incentive-compatible contracting. This study develops a mechanism design model integrating adverse selection constraints with moral hazard mitigation protocols to derive optimal incentive contracts in multi-tier organizational hierarchies. Employing a mixed-methods approach—combining axiomatic contract theory with empirical panel data from 214 publicly listed firms across OECD economies (2018–2023)—we identify governance configurations in which residual claimancy structures and performance-contingent compensation schedules converge toward Pareto-efficient equilibria. Our findings demonstrate that tiered vesting mechanisms coupled with board-level monitoring intensity significantly attenuate opportunistic managerial behavior. Policy implications for corporate governance reform and remuneration committee design are discussed.