What term describes situations in which the aspects of the agent's action that are important to the principal cannot be observed?
A)Unobservable action
B)Hidden action
C)Covert action
D)Unobservable information
E)Hidden information

Question

Quizplus · Accepted Answer

Hidden action refers to situations in which the principal is unable to observe the aspects of an agent's action that are important to them (such as effort or performance). This can create problems with incentive alignment and can make it difficult for the principal to hold the agent accountable for their actions. Unobservable information also refers to situations in which the principal is unable to observe important information, but this is not the same as hidden action. Covert action refers to actions that are intentionally hidden or kept secret, but this is not specific to agency problems.

What Term Describes Situations in Which the Aspects of the Agent's