In the moral hazard problem the:
A)agent performs some task on behalf of the principal
B)principal performs some task on behalf of the agent
C)the principal and the agent have the same goals and preferences
D)agent can perfectly monitor the principal's behaviour

Question

Quizplus · Accepted Answer

In the moral hazard problem, the agent performs a task on behalf of the principal, such as managing the principal's financial portfolio, but may have an incentive to take actions that benefit themselves at the expense of the principal, since they may not bear the full costs or consequences of their actions. This creates a problem of information asymmetry and potential conflicts of interest between the principal and the agent, which can lead to adverse outcomes.

In the Moral Hazard Problem The