Agency theory says that the principal must choose a contracting scheme that _____.
A)is not based on compensation systems such as merit pay
B)helps the agent maximize his/her benefits
C)provides complete autonomy to the agent
D)does not offer outcome-oriented compensation to agents
E)helps align the agent's interests with the principal's interests

Question

Quizplus · Accepted Answer

Agency theory says that the principal must choose a contracting scheme that helps align the interests of the agent with the principal's own interests (that is, it reduces agency costs).

Agency Theory Says That the Principal Must Choose a Contracting