The principal-agent problem in corporations exists because the managers of a firm:
A) may pursue their own goals even when the result is lower profit for owners.
B) may know how to operate the business better than absentee owners do, and yet not be allowed to.
C) are generally unable to do the monitoring that would result in the firm's avoiding moral hazard problems.
D) are generally unable to do the monitoring that would result in the firm's avoiding adverse selection.
E) are generally unable to monitor workers, who do not care about the profits due the managers.

Question

Quizplus · Accepted Answer

The principal-agent problem arises because managers may pursue their own interests at the expense of the owners' interests. This can lead to decisions that lower profits for owners but benefit managers personally.

The Principal-Agent Problem in Corporations Exists Because the Managers of a Firm