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The thesis tests the efficacy of Principal-Agent (PA) theory in explaining the creation and development of the European Neighbourhood Policy (ENP). As such, the thesis is subject as well as theory-driven. Empirically, the focal point is how the interaction between the EU member states and the European Commission affected the development of the ENP. It is a theme which is largely overlooked in the ENP literature. In terms of theory, the ENP represents a fascinating case study for PA analysis not only because it has rarely been applied to the field of EU foreign policy but also because PA has seldom been used for studying the evolution of a policy (both pre and post-delegation). Conceptualising EU member states as principals and the European Commission as agent, the thesis examines PA dynamics through the following three ENP policy stages: formulation (2002-2004), finalisation (2004-2006), and implementation (2007-2009). Three hypotheses are tested for each stage of the ENP. Two hypotheses are rooted in PA scholarship, and address the influence of the agent as an informal agenda-setter, while the third distinguishes the agent's influence between different stages of the policy development. Methodologically, the research design is based on within-case process-tracing while the empirical data is drawn from a triangulation of official documents, secondary sources and elite interviews. The thesis findings show that during the initial stages of the policy, the Commission took advantage of its favourable position (e.g. informational asymmetries and uncertainty among the member states) to establish itself as the key actor in the ENP. As the ENP evolved, the Commission’s influence has diminished while the member states, collectively and individually, became more engaged in determining the course of the policy. However, contrary to PA assumptions, member states' increased oversight over the Commission did not come as a response to disobedient behaviour. Based on the empirical data, the Commission, as an agent, was in fact trying to implement the ENP following the guidelines which were previously agreed by its principals. Thus, in the case of the ENP, my PA analysis shifts from the traditional inquiry of how principals control opportunistic agents, to examining how principals could hinder the work of the agent. This phenomenon, broadly defined by Thompson (2007) as the ‘principal problem’, is an anomaly in existing PA literature dominated by an agency-biased standpoint and has previously not been analysed in the context of the European Union. Finally, the wider implication of this thesis is that there is still room for broadening the scope of PA analysis while highlighting the necessity to keep a watchful eye on both the principals and the agent.