The recent Enron and Tyco scandals are an example of
A) the free-rider problem.
B) the adverse selection problem.
C) the principal-agent problem.
D) the "lemons problem."

Question

Quizplus · Accepted Answer

The Enron and Tyco scandals are perfect examples of the principal-agent problem. The agents (top executives) were acting against the interests of the principals (shareholders) and engaging in fraudulent activities for personal gain. This misalignment of incentives and lack of proper monitoring led to the collapse of both companies.

The Recent Enron and Tyco Scandals Are an Example of