The challenges imposed by the rapid rate of change in society is significant. The skills and knowledge imparted by traditional methods no longer seem to be adequate to prepare students for success in life. Jobs that are relevant today will no longer be relevant tomorrow and with the rapid change of technology, the next generation of jobs will be characterised by increased technology use, problem solving and complex communication[1] . The rise of various “21st century skills” taxonomies and framework highlights the discrepancy between the skills and knowledge required to operate in the world as against what is being imparted in educational institutions.

Current pedagogical methods of imparting knowledge in most institutes are predominantly through instructor led training and case study methods, and these methods inherently offer a possibility of assessing students post learning has taken place, the process of learning is disconnected with the process of assessment.

Principal – Agent Problem

Student as the Agent
In the instructor-student relationship, the instructors can be viewed as principals and the students as their agents. The instructor’s goal is to produce educated students’ and the students’ are charged with the responsibility of fulfilling that goal. If the instructor fails in achieving the goal, the reputation of the program and his reputation as an instructor suffers.[2]

Student as the Principal
On the other hand if we reverse the role and make the student the principal and responsibility to educate lies with the instructor, then the student does not take the responsibility for his learning. Research however has shown that learning can take place only with a willing participant[3]. Thus the responsibility of learning lies with the student’s and they are seen as a product than a customer.

Evaluation Methods
Instructors generally use outcome based measure to evaluate the students performance by providing a quiz, multiple choice or descriptive questions. Given the nature of the relationship between the instructor and the student as explained by agency theory, the current method of outcome based evaluation might not be effective.

Heavy reliance is on outcome based measures in educational institutions with a focus on end results irrespective of how students achieve them. There is very little of the students behaviour or evidence of how the students apply the gained knowledge in accordance with industry gets measured.

Agency Theory
Agency theory variables such as Principal-Agent Risk, goal conflict, outcome uncertainty, task programmability, moral hazard and adverse selection are important yardsticks to understand the relationship between the principal and agent and especially principals evaluation of performance.

Principal and Agent Risk: The core of the principal agent theory is the tradeoff between the cost of measuring behaviour and the cost of measuring outcomes and transferring risk to the agent[4] In the context of higher education the tradeoffs are between the effort the instructor needs to put to measure students behaviour and the level of effort to measure the outcome and let the student’s take the risk.

Goal Conflict: The conflict in goals between the instructor and the students makes the relationship more complex to align their objectives. Different students would have varying objectives. Some might enrol for a course just as a stepping stone for a lucrative career, some genuinely interested in learning and some following the herd. When there is conflict between the objectives of the instructor and the agent, the instructor relies heavily on outcome measures and putting pressure on the agent to fall in line.

Outcome Uncertainty: In an uncertain environment the measurement mechanisms move from outcome based measures to behaviour based measures. When the outcome is uncertain it is in the best interest of the agent to shift some of the responsibility to the principal, thereby wanting to be measured not only based on outcomes but also based on behaviours.

Task Programmability: In agency theory task programmability refers to specifying appropriate behaviours in advance. In management education when a typical class size is greater than 30 students and in-order to have a common measurement method to assess the student, the instructor resorts outcome based measurement methods in providing a quiz or multiple choice questions which is easily gradable and comparable. In such a context, the students behaviour is ignored.

Moral Hazard: Since the principal would not be in a position to monitor the agents activity outside of the classroom and the agents do not put forth the expected outcome that is required, the principal strictly resorts to outcome based measures.

Adverse Selection: Adverse selection happens when the agents project themselves with capabilities that they do not posses. The instructor does not have the choice of which students attend the institution and hence they would resort to weed out the incapable students by measuring outcomes early on and resort to measuring behaviours of those who are left.

Given the context, there is a pressing need to look at alternate pedagogical methods to minimise the classical problem between the principal and agent.

1. Michael E. Smith, George A. Zsidisin, Laural L. Adams, Decision Sciences Journal of Innovative Education, Volume 3 Number 1, 2005
2. Zemke, R., & Zemke, S. (1988). 30 things we know for sure about adult learningTraining, 25(7), 57–61.
3. Levy.F., & Murnane,R.J. The new division of labor: How computers are creating next job markets.
Princeton,NJ:Princeton University Press, 2004
4. Eisenhardt, K. M. (1989). Agency theory: An assessment and review. Academy of Management Review, 14(1), 57–74.