When delegating authority, the agency problem arises because:

Question

Quizplus · Accepted Answer

The agency problem arises when one party (the principle) delegates authority to another party (the agent), but the agent may act in their best interest instead of the principle's. This can happen because the agent typically has less information than the principle, which can lead to moral hazard and adverse selection. Therefore, D is the best choice as it correctly identifies the information asymmetry between principle and agent as the cause of the agency problem.

When Delegating Authority, the Agency Problem Arises Because