Suppose a company's owners have a hard time observing whether management is acting primarily in its own interest or for the benefit of the company. This situation sets up a:
A) fiduciary responsibility conundrum.
B) principal-agent problem.
C) problem with inefficient loss aversion.
D) symmetry relationship.

Question

Quizplus · Accepted Answer

This scenario describes a principal-agent problem, where the principals (owners) cannot easily determine if the agents (management) are making decisions that align with the principals' best interests or if they are acting out of self-interest.

Suppose a Company's Owners Have a Hard Time Observing Whether