Akiko and her friend Priyana both work for an electronics store. Akiko's pay is entirely based on commission. Priyana is one of 25 salaried customer service workers who are overseen by one manager. There is a _____ possibility of _____ arising in Priyana's job than in Akiko's job.
A)greater; signaling
B)lesser; moral hazard
C)greater; the principal-agent problem
D)lesser; adverse selection

Question

Quizplus · Accepted Answer

The principal-agent problem is more likely to arise in Priyana's job than in Akiko's because Priyana is a salaried employee, which can lead to issues where her interests may not align with those of her manager (the principal), especially in terms of effort and performance. Akiko's commission-based pay aligns her interests more closely with company goals, reducing the principal-agent problem.

Akiko and Her Friend Priyana Both Work for an Electronics