The principal-agent problem ________.
A) arises because principals have incentives to free-ride off of the monitoring expenditures of other principals
B) arises because principals find it simple to monitor agents' activities
C) arises because agents' incentives are always compatible with those of the principals
D) arises because principals' incentives are always compatible with those of the agents

Question

Quizplus · Accepted Answer

The principal-agent problem arises because principals have incentives to free-ride off of the monitoring expenditures of other principals, which lead to a lack of monitoring and potential shirking by the agents.

The Principal-Agent Problem ________