Use the following statements to answer this question: I. Based on the principal-agent framework in economics, we know that the lack of incentive compatibility may arise in private firms but not in public agencies or government bureaus.
II) The key problem in principal-agent situations is the principal's fundamental inability to oversee or supervise the agent.
A) I and II are true.
B) I is true and II is false.
C) II is true and I is false.
D) I and II are false.

Question

Quizplus · Accepted Answer

Statement II is true - the key problem in principal-agent situations is the principal's inability to oversee or supervise the agent. However, statement I is false. Incentive compatibility problems can arise in both private firms and public agencies, as both are vulnerable to agents pursuing their own self-interest rather than acting on behalf of the principal.

Use the Following Statements to Answer This Question: I