Federal Express enters into contracts with independent truck operators who offer FedEx service and who are rewarded by the volume (cubic feet)of packages they carry. FedEx does not hire more independent drivers because
A)it is concerned about a possible downturn in the economy and the effects of overexpansion.
B)it cannot afford more trucks and more drivers.
C)of the principal-agent problem.
D)it is a corporation, so it wants to have a limited number of independent truck owners operating as proprietorships.
E)trucks are not a technologically efficient method of transporting parcels.

Question

Quizplus · Accepted Answer

The principal-agent problem refers to the potential conflict of interest between a principal (in this case, FedEx) and an agent (independent truck operators) who is hired to act on behalf of the principal. By hiring independent truck operators, FedEx avoids this problem because they are rewarded by the volume of packages they carry, which aligns their interests with those of FedEx. If FedEx were to hire more drivers as employees, there could be a potential conflict of interest between the drivers and the company, leading to higher costs and inefficiencies. Therefore, the best answer is C.

Federal Express Enters into Contracts with Independent Truck Operators Who