Which one of the following best exemplifies the principal-agent problem in the employer-employee relationship?
A) A worker takes 20-minute coffee breaks although the employer allots only 15 minutes for this purpose.
B) A worker is on the job 50 hours per week although only 40 hours are required for promotion.
C) A worker opts for early retirement in response to the firm's incentive plan.
D) A worker's productivity is independent of the wage paid.

Question

Quizplus · Accepted Answer

The principal-agent problem occurs when an agent (employee) has incentives to act in their own interest rather than the principal's (employer's) interest. Taking longer breaks than allotted is an example of this misalignment.

Which One of the Following Best Exemplifies the Principal-Agent Problem