In the Presence of Asymmetric Information,a Hire Contract

question 78

Multiple Choice

In the presence of asymmetric information,a hire contract

• A) achieves production efficiency.
• B) can lead to opportunistic behavior on the part of the agent.
• C) is impossible to write.
• D) will result in the principal earning all of the profit.

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Definitions:

Unsecured Creditor

A creditor who has extended credit without securing collateral and thus stands at a higher risk in case of the debtor's bankruptcy.

Secured Bond

A type of bond backed by collateral, providing the bondholder with a claim on specific assets if the issuer defaults.

Enforceable

A term describing a contract or legal obligation that is legally binding and can be upheld in court.

Junk Bonds

High-risk, high-yield bonds issued by companies considered to be at greater risk of default.