Which of the following conditions must hold in order to have a principal-agent problem?
A) Managers and owners have different objectives for the firm.
B) It is very costly to oversee every managerial decision to make sure all decisions increase the value of the firm.
C) Complete contracts effectively restrain managers from making value-reducing decisions.
D) The objectives of managers and owners are aligned but hidden actions by managers cannot be observed no matter how much is spent on monitoring managers.
E) both a and b
Correct Answer:
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