Though Congress created the Food and Drug Administration (FDA), Congress has delegated much of its rule-making power regarding the FDA's function to the executive branch. Occasionally, the president orders the FDA to create new rules to regulate a particular product, such as tobacco, over the objections of Congress. This scenario is an example of which principal-agent problem?

Question

Quizplus · Accepted Answer

This scenario represents an agency loss, as Congress, the principal, has given away much of its power to regulate the FDA to the executive branch. When there is disagreement between the president and Congress, it creates a situation where the agency may not be fully representing the interests of the principal, resulting in an agency loss. The other options, instrumental behavior, asymmetric information, and transaction costs, do not accurately describe the scenario presented.

Though Congress Created the Food and Drug Administration (FDA), Congress