Though Congress created the Food and Drug Administration (FDA), Congress has delegated much of its rule-making power regarding the FDA's function to the executive branch.Occasionally, the president orders the FDA to create new rules to regulate a particular product, such as tobacco, over the objections of Congress.This scenario is an example of which principal-agent problem?

Question

Quizplus · Accepted Answer

This scenario is an example of agency loss, where the principal (Congress) delegates power to the agent (FDA) but does not have control over the actions of the agent due to information asymmetry and instrumental behavior. The president's order to the FDA creates a conflict of interest, as it prioritizes the president's agenda instead of the interests of Congress or the public, resulting in agency loss. Therefore, E is the best choice.

Though Congress Created the Food and Drug Administration (FDA), Congress