According to the principal-agent problem, when the principal hires the agent to complete a task but is unable to watch the agent complete it, the agent has an incentive to
A)do the opposite of what is asked.
B)do exactly what is requested.
C)underdeliver.
D)overdeliver.

Question

Quizplus · Accepted Answer

The principal-agent problem arises due to the incentive misalignment between the principal (who hires the agent) and the agent (who performs the task). Since the principal cannot monitor the agent's performance constantly, the agent may have an incentive to underdeliver or shirk, i.e., not put in the required effort to complete the task as per the principal's expectations. This can occur when the agent is not adequately compensated, is risk-averse, or is unsure about the principal's trustworthiness. Therefore, option C, underdeliver, is the best answer.

According to the Principal-Agent Problem, When the Principal Hires the Agent