The problem the agent faces when deciding how to keep the agent motivated is called

Question

​The problem the agent faces when deciding how to keep the agent motivated is called

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The problem of how to keep the agent motivated is a classic example of moral hazard. Moral hazard refers to the problem of having asymmetric information between the principal and the agent, where the agent has an incentive to take risks that are not in the best interest of the principal. In this case, the agent may be motivated to shirk their responsibilities or underperform if they believe they will not face any negative consequences. Therefore, ensuring that the agent has appropriate incentives to perform well is critical in addressing the problem of moral hazard. Option A, adverse selection, is when one party in a transaction has more information than the other party. However, this is not directly relevant to the issue of keeping an agent motivated.

​The Problem the Agent Faces When Deciding How to Keep

The Problem the Agent Faces When Deciding How to Keep