The Thompsons use video surveillance to ensure that the lawn care company they employ applies the lawn fertilizer and weed controller they paid for. This is an example of solving
A)a principal-agent problem through monitoring.
B)a lemon's problem through quality control.
C)an adverse selection problem due to buyer-held private information.
D)a risk-aversion problem due to insufficient seller information.

Question

Quizplus · Accepted Answer

The Thompsons using video surveillance to ensure that the lawn care company they employ applies the lawn fertilizer and weed controller they paid for is an example of solving a principal-agent problem through monitoring. The Thompsons, as the principal, have hired the lawn care company as their agent to perform a task on their behalf (applying fertilizer and weed controller), but they cannot be sure if the company is executing their task properly. By monitoring the company with video surveillance, the Thompsons are deterring the agent from shirking their duties and therefore mitigating the principal-agent problem.

The Thompsons Use Video Surveillance to Ensure That the Lawn