The principal-agent problem is the problem of:
A) an agent trying to exploit an information advantage in a dishonest way.
B) incentivizing an employee to work in the interest of the owner.
C) one party to an exchange having more information than the other party.
D) an offer conveying negative information about the product being offered.

Question

Quizplus · Accepted Answer

The principal-agent problem arises when the owner (principal) hires an employee (agent) to perform a task, but their interests may not be aligned. The agent may act in their own self-interest instead of working in the best interest of the owner, leading to a potential loss for the owner. Incentives need to be put in place to align the interests of both parties, ensuring that the agent acts in the best interest of the owner.

The Principal-Agent Problem Is the Problem Of