The best way to address agency problems is
A)always hire your friends.
B)design the initial contract properly with appropriate incentives.
C)hire an attorney and threaten the agent with a lawsuit.
D)have the principal and agent go through arbitration.

Question

Quizplus · Accepted Answer

The best way to address agency problems is by designing the initial contract properly with appropriate incentives. This helps align the interests of the principal and the agent and ensures that the agent's behavior is consistent with the principal's objectives. Hiring friends (A) can lead to favoritism and bias, which can be detrimental to the agency relationship. Threatening the agent with a lawsuit (C) or going through arbitration (D) can damage trust and goodwill between the principal and agent and undermine the effectiveness of the relationship.

The Best Way to Address Agency Problems Is