A principal-agent problem occurs when
A) people are "fooled" by high absolute wages offered by employers.
B) insurance increases people's willingness to take risks.
C) an employer cannot fully monitor the employee's work.
D) a highly productive worker is unable to earn any rent.

Question

Quizplus · Accepted Answer

A principal-agent problem arises when an employer hires an employee to perform a task or take a decision, but cannot fully monitor or control the employee's work. This may lead to a situation where the employee pursues personal goals or shirks his responsibilities, instead of acting in the interest of the employer.

A Principal-Agent Problem Occurs When