Which of the following compensation schemes can be explained as an attempt to solve a principal-agent problem?
A) Real estate agents are paid on a strict commission basis; if they don't sell a client's listed property they don't get paid.
B) Personal injury lawyers often work on a contingency basis. If the lawyer wins the case they receive a significant share of the award; if the lawyer doesn't win the case the lawyer doesn't get paid.
C) Traveling sales people, who are costly and difficult to monitor, generally receive a significant share of their compensation in the form of commissions or bonuses for meeting sales targets.
D) All of the above compensation schemes attempt to solve a principal-agent problem.

Question

Quizplus · Accepted Answer

All the compensation schemes mentioned are designed to align the interests of the agent (e.g., real estate agents, lawyers, salespeople) with those of the principal (e.g., property owners, clients, employers) by incentivizing the agent to act in the principal's best interest, thus addressing the principal-agent problem.

Which of the Following Compensation Schemes Can Be Explained as an Attempt