In the moral hazard problem the:
A)agent tends to undertake more effort than the principal considers desirable
B)agent tends to undertake less effort than the principle considers desirable
C)problem of asymmetric information is absent
D)agent does not exhibit any 'undesirable' behaviour

Question

Quizplus · Accepted Answer

In the moral hazard problem, the agent tends to undertake less effort than the principal considers desirable because the agent's actions are not perfectly observable by the principal. This creates a situation where the agent may take actions that benefit themselves at the expense of the principal's interests. This creates a moral hazard problem, where the agent has an incentive to act in a way that is different from what the principal intended.

In the Moral Hazard Problem The