The principal-agent problem occurs:
A)when the principal has more information than the agent.
B)commonly in school settings, when the agent puts in more effort than the principal would like.
C)commonly in the employer-employee relationship.
D)when the principal and agent have the same objectives.

Question

Quizplus · Accepted Answer

The principal-agent problem typically arises in situations where there is a conflict of interest between a principal (such as an employer) and an agent (such as an employee), and where the agent has more information than the principal. This is common in the employer-employee relationship, where the employer may not be able to fully monitor the actions of the employee, leading to potential issues like shirking or not acting in the employer's best interests.

The Principal-Agent Problem Occurs