Principal-agent problems are less likely to arise

Question

Quizplus · Accepted Answer

Principal-agent problems arise when there is a conflict of interest between the principal (who hires the agent to carry out a task) and the agent (who performs the task). If it is easy for principals to monitor and observe the actions of agents, and if there is less conflict between the goals of the principal and the agent, then principal-agent problems are less likely to arise. On the other hand, if it is hard for principals to monitor agents and if there is a significant difference in their goals, then principal-agent problems are more likely to occur. Hence, option A is the correct choice. Option E (if agents have higher incomes) is irrelevant and not related to the occurrence or prevention of principal-agent problems.

Principal-Agent Problems Are Less Likely to Arise