A Long-Term Contract Does Not Provide an Incentive for a Supplier

question 43

True/False

A long-term contract does not provide an incentive for a supplier to invest in new plants and equipment.

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Definitions:

Principal-Agent Problem

A dilemma arising from a conflict of interest between a principal (someone who entrusts a task) and an agent (the one performing the task), where the agent may not act in the best interest of the principal.

Behavioral Asymmetry

A situation in economic or psychological contexts where individuals or entities exhibit uneven or unequal behavioral responses under similar circumstances.

Economics

The study of how society manages its scarce resources.

Signaling

An action taken by an informed party to reveal private information to an uninformed party.