The First Concern in Determining Whether a Relationship Should Be

question 33

Multiple Choice

The first concern in determining whether a relationship should be based on contract or equity is:

• A)The kind of resources and capabilities that are shared.
• B)Direct monitoring and control.
• C) Real options.
• D) Institutional constraints.

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Definitions:

Moral Hazard

The situation that can exist when an individual knows more about his or her own actions than other people do. This leads to a distortion of incentives to take care or to expend effort when someone else bears the costs of the lack of care or effort.

Risk Aversion

The tendency to prefer certainty over uncertainty, avoiding risk in decision-making or preferring safer investments.

Insurance

A means of protection from financial loss, characterized by the transfer of risk from one entity to another in exchange for payment.

Consumer

An individual or group who purchases goods and services for personal use.