The costs associated with principal-agent relationships are called _____.

Question

Quizplus · Accepted Answer

The costs associated with principal-agent relationships are called agency costs. These costs arise due to the conflicts of interest between the principal (the owner of the organization) and the agent (the hired manager who makes decisions on behalf of the principal). These conflicts of interest may arise due to differences in goals, risk preferences, and information asymmetry between the two parties, leading to agency costs such as monitoring costs, bonding costs, and residual losses.

The Costs Associated with Principal-Agent Relationships Are Called _____