The Principal-Agent Problem Arises When

question 21

Multiple Choice

The principal-agent problem arises when

• A) the principal and the agent have different objectives.
• B) the principal cannot enforce the contract with the agent or finds it too costly to monitor the agent.
• C) the principal cannot decide whether the firm should seek to maximize the expected future profits of the firm or maximize the price for which the firm can be sold.
• D) both a and b
• E) both a and c

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Definitions:

Vicarious Punishment

A process of learning where an individual observes another being punished and consequently is less likely to repeat the observed behavior.

Adam

In a Judeo-Christian context, traditionally considered the first human created by God. The term is also used generically to refer to any man.

Theory Of Mind

People’s ideas about their own and others’ mental states—about their feelings, perceptions, and thoughts, and the behaviors these might predict.

Violence-Viewing Effect

The theory suggesting that exposure to violence through media can increase aggressive behavior and decrease empathy in individuals.