The problem with monitoring as a tool to solve the ________ problem is that it can be expensive in terms of time and money,as reflected in the name economists give it,costly state verification.
A) principal-agent
B) adverse selection
C) audit
D) regulation

Question

Quizplus · Accepted Answer

The costly state verification problem specifically refers to the issue of a principal (such as a company's shareholders) needing to verify that an agent (such as the company's management) is carrying out their duties in accordance with the principal's interests. This is a classic example of a principal-agent problem, and monitoring is one potential tool to address it. Adverse selection, audit, and regulation may also be relevant in different contexts, but they do not specifically relate to the costly state verification problem.

The Problem with Monitoring as a Tool to Solve the ________