Designing efficient contracts are costly when:
A)there is perquisite involved.
B)there is complete information.
C)there is asymmetric information.
D)there is an agency relationship.

Question

Quizplus · Accepted Answer

Designing efficient contracts is costly when there is asymmetric information, which means that one party has more information about a transaction than the other. In such situations, it is difficult to design contracts that ensure that both parties act in their mutual best interest. The cost of designing such contracts includes information gathering, monitoring, and enforcement. Perquisites (A) and complete information (B) do not necessarily pose challenges in designing efficient contracts, while an agency relationship (D) may or may not involve asymmetric information depending on the circumstance.

Designing Efficient Contracts Are Costly When