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Questions and Answers
What problem arises when an agent acts on behalf of a principal?
What problem arises when an agent acts on behalf of a principal?
- Moral Hazard (correct)
- Insufficient effort
- Transparency issue
- Entrenchment
What is an example of entrenchment as part of the agency problem?
What is an example of entrenchment as part of the agency problem?
- Insufficient effort
- Self-dealing
- Lack of transparency
- Extravagant investment (correct)
How can the principal-agent problem be mitigated?
How can the principal-agent problem be mitigated?
- Ethical guidelines
- Strict regulations
- Increased compensation
- Complete contracts (correct)
What may be in the interest of the agent to do once a contract is signed?
What may be in the interest of the agent to do once a contract is signed?
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What is the primary cause of the agency problem?
What is the primary cause of the agency problem?
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