Suppose Transactions Costs Are Created by a Principal-Agent Problem

question 9

Multiple Choice

Suppose transactions costs are created by a principal-agent problem.If the objective is economic efficiency,who should be made liable for damages resulting from the interaction of the principal and the agent?

• A) The principal should be liable for all damages.
• B) The agent should be liable for all damages.
• C) Liability for damages should be equally split between the principal and the agent.
• D) The assignment of liability is irrelevant according to the Coase Theorem.

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Definitions:

Motivation to Lead

The inherent or developed desire and drive in individuals to guide, direct, or influence others in a group or organization.

Romance of Leadership

The tendency to attribute organizational successes to the actions and decisions of leaders, often overlooking external factors and the contributions of others.

Equivalence

The quality or condition of being equal or equivalent in value, function, meaning, or status.

Norm of Reciprocity

A social principle that suggests individuals respond to others in kind, based on the treatment they receive.