The principal-agent problem exists when
A)there is no command system in place.
B)firms operate as sole proprietorships.
C)agents do not act in the best interest of principals.
D)principals do not act in the best interest of agents.
E)the future value of money is more than its current value.

Question

Quizplus · Accepted Answer

The principal-agent problem arises when the agent (an individual or a group of individuals) do not take decisions that are in the best interest of the principal (the owner or shareholders of the firm). The agents may prioritize their own interests or have incomplete information, leading to an asymmetry of information between the principal and the agent. This problem is commonly observed in corporations where managers act on behalf of the shareholders, creating a potential conflict of interest.

The Principal-Agent Problem Exists When