A company scientist at a biotechnology company decides to work on his own research project, hoping to eventually start his own firm, rather than on the project he was assigned. However, the company's stockholders are unaware of this situation. This is an example of a(n) ________ in the context of a principal-agent problem.

Question

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This is an example of a moral hazard in the context of a principal-agent problem. In the principal-agent relationship, moral hazard describes the difficulty of the principal to ascertain whether the agent has really put forth a best effort.

A Company Scientist at a Biotechnology Company Decides to Work