Because the agent's preferences sometimes differ from those of the principal, usually the principal entirely eliminates the agent's prospective deviations by spelling out the agent's actions in a detailed contract.

Question

Quizplus · Accepted Answer

It is often impractical or impossible for the principal to entirely eliminate the agent's prospective deviations through detailed contracts due to the complexity of the tasks, unforeseen circumstances, and the costs of monitoring and enforcing such contracts. Instead, principals use various mechanisms like incentives, performance evaluations, and trust-building measures to align the agent's actions with their interests.

Because the Agent's Preferences Sometimes Differ from Those of the Principal