Moral hazard in equity contracts is known as the ________ problem because the manager of the firm has fewer incentives to maximize profits than the stockholders might ideally prefer.
A)principal-agent
B)adverse selection
C)free-rider
D)debt deflation

Question

Quizplus · Accepted Answer

The moral hazard in equity contracts, where the manager may not have adequate motivation to maximize profits for shareholders, is known as the principal-agent problem. This arises due to the divergent interests of the principal (shareholders) and the agent (manager), leading to a situation where the agent may shirk responsibilities and indulge in actions that benefit them personally but not necessarily the principal.

Moral Hazard in Equity Contracts Is Known as the ________