Residual loss, as an agency cost, refers to:
A) the costs incurred by the agent when implementing assurances that they are acting in the principal's best interests.
B) the costs incurred by the principal in observing, evaluating and controlling the agent's behaviour.
C) the amount by which the marginal cost is less than the expected benefit of additional monitoring and bonding.
D) the amount by which the marginal cost exceeds the expected benefit of additional monitoring and bonding.

Question

Quizplus · Accepted Answer

Residual loss as an agency cost refers to the amount by which the marginal cost exceeds the expected benefit of additional monitoring and bonding. This occurs when resources are spent on monitoring and bonding but still do not fully align the interests of the agent and principal, resulting in a loss for the principal.

Residual Loss, as an Agency Cost, Refers To