The problem of how a manager can incentivize a worker to work in the interest of the manager is an example of:
A) the principal-agent problem.
B) adverse selection.
C) moral hazard.
D) information asymmetry.

Question

Quizplus · Accepted Answer

The principal-agent problem is a situation where a principal (such as a manager) hires an agent (such as a worker) to perform a task but the agent's interests may be different from the principal's interests. Incentivizing the worker to work in the interest of the manager is an attempt to solve this problem. Adverse selection is a situation where one party has more information than the other party in a transaction, and moral hazard is a situation where one party takes risks knowing that the consequences will be borne by another party. Information asymmetry is a situation where one party has more information than the other party, which can lead to adverse selection or moral hazard.

The Problem of How a Manager Can Incentivize a Worker