The difficulty that arises when one party (the principal) relies on another (the agent) to act on its behalf, but the agent has different interests and information the principal cannot fully observe.
In more detail
Two forms recur: adverse selection, when the principal cannot tell good agents from bad before delegating, and moral hazard, when it cannot observe the agent's actions afterwards. Remedies include incentive contracts, monitoring, bonding, competition among agents, transparency and the threat of dismissal. In politics the chain runs from voters to representatives, ministers and bureaucrats. Jensen and Meckling (1976) defined agency costs as monitoring and bonding expenditures plus the residual loss.