Principal-Agent Theory Deals with the Problem Of

question 16

Multiple Choice

Principal-agent theory deals with the problem of:

• A) designing an efficient contract between the employer and the employee when there are incentives to cheat or shirk.
• B) failed negotiations between workers and their employees.
• C) designing an optimal compensation when there is perfect information.
• D) designing an optimal compensation system to reduce turnover.

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Definitions:

Investment Centre

A business unit or division within an organization that is responsible for its own revenues, expenses, and assets, and is evaluated based on its return on investment.

Profit Margin

A financial metric indicating the percentage of revenue that exceeds the cost of goods sold, used to assess a company's financial health.

Capital Invested

Capital deployed by a business to purchase or improve tangible assets like real estate, factories, or machinery.

Hygiene Factors

Factors related to job conditions that do not necessarily motivate employees if present, but can cause dissatisfaction if absent, such as company policies, administrative practices, or salary.