A problem for equity contracts is a particular type of ________ called the ________ problem.
A)adverse selection;principal-agent
B)moral hazard;principal-agent
C)adverse selection;free-rider
D)moral hazard;free-rider

Question

Quizplus · Accepted Answer

The correct answer is moral hazard; principal-agent problem. This problem arises when there is a conflict of interest between a principal (e.g., a shareholder) and an agent (e.g., a company's executive), where the agent has an incentive to act in their own best interests rather than those of the principal, especially when the principal cannot perfectly monitor the agent's actions.

A Problem for Equity Contracts Is a Particular Type of ________