Principal-agent problems arise when
A) the principal negotiates contracts on behalf of the agent.
B) the agent negotiates contracts on behalf of the principal.
C) the agent's objectives are different from the principal's objectives.
D) firm owners (the principals) pay employee wages (the agents) based on race.
E) workers (the principals) work harder when the firm owners (the agents) increase wages.

Question

Quizplus · Accepted Answer

Principal-agent problems occur when there is a misalignment of objectives between the principal (the party that delegates work) and the agent (the party that performs the work). This misalignment can lead to issues where the agent may not act in the best interest of the principal.

Principal-Agent Problems Arise When