Agents and principals both bear a portion of the agency costs in a principal-agent relationship.

Question

Quizplus · Accepted Answer

Agency costs exist due to the inherent conflict of interest between the agent and the principal. Both parties bear a portion of these costs, as the principal must expend resources to monitor the agent's actions and the agent may bear the cost of incentives and effort to perform their duties satisfactorily.

Agents and Principals Both Bear a Portion of the Agency