What Role Does Reputation Have in Solving Principal-Agent Problems

question 40

Multiple Choice

What role does reputation have in solving principal-agent problems?

• A) There is no effect of reputation.
• B) Reputations enable principals to pick better agents.
• C) Reputation is the only solution to principal-agent problems.
• D) Reputations enable agents to pick better principals.
• E) Principals pay no attention to the reputation of agents.

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Definitions:

Exchange Theory

A social theory that explains human behavior in terms of the exchange of goods, services, and favors, aiming for balance and reciprocity in interpersonal relationships.

Norm Of Reciprocity

A social norm that prescribes individuals to respond to others' actions and gestures with similar actions, fostering cooperation and social exchanges.

Body Language

Non-verbal communication through physical behaviors, such as gestures, postures, and facial expressions, which convey messages or emotions.

Widely Shared Expectations

Norms or beliefs that are commonly held and anticipated by a large number of people within a society or group.