Which of the following must a principal do to reduce agency costs?
A)Encourage the agent to maximize his/her benefits.
B)Provide complete autonomy to the agent.
C)Discourage the agent from pursuing projects with high potential payoffs.
D)Increase information asymmetry and goal congruence.
E)Align the agent's interests with the principal's interests.

Question

Quizplus · Accepted Answer

Agency theory says that the principal must choose a contracting scheme that helps align the interests of the agent with the principal's own interests (that is, it reduces agency costs). These contracts can be classified as either behavior-oriented (such as merit pay)or outcome-oriented (stock options, profit sharing, commissions, and so on).

Which of the Following Must a Principal Do to Reduce