In the case of a moral-hazard problem,which of the following is not a way for the principal to encourage the agent to act more responsibly?
A) the principal could better monitor the agent
B) the principal could pay the agent above-equilibrium wages
C) the principal could delay payment to the agent
D) the principal could pay the agent below-equilibrium wages

Question

Quizplus · Accepted Answer

Paying the agent below-equilibrium wages would only exacerbate the moral-hazard problem by reducing the incentive for the agent to act responsibly. The other options - better monitoring, paying above-equilibrium wages, and delaying payment - can all create incentives for the agent to act more responsibly by increasing the cost of shirking or reducing the benefits of taking excessive risk.

In the Case of a Moral-Hazard Problem,which of the Following