In a Principal-Agent Problem,if the Contract Implies That the More

question 97

Multiple Choice

In a principal-agent problem,if the contract implies that the more risk-averse agent will bear less risk,we can say that this contract exhibits

• A) efficiency in risk-bearing.
• B) risk sharing is not optimal because the less risk-averse (or risk-neutral) agent should bear none of the risk.
• C) risk sharing is not optimal because all risk should be transferred to the most risk-averse agent.
• D) risk sharing is not optimal because risk-neutral agents should face no risk.

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Definitions:

Procedural Fairness

The perceived fairness of the processes and methods used to make decisions and resolve disputes.

Input/Outcome Ratio

is a concept in equity theory that refers to an individual's perception of the fairness of their work input compared to the outcomes or rewards they receive.

Procedural Unfairness

The perception that the processes used to make decisions or resolve disputes are unjust, biased, or lacking in transparency.

Collective Cultures

Societies or groups that prioritize the goals, values, and wellbeing of the community over individual achievements and desires.