The Principal-Agent Problem Arises in Corporations Because the Interests of the Owners

question 67

True/False

The principal-agent problem arises in corporations because the interests of the owners or stockholders are aligned with the chief executives who run the corporations for the owners.

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Definitions:

Transaction Costs

Expenses incurred when buying or selling a good or service, which can include fees, taxes, and other charges beyond the price of the product itself.

Complete Information

A state in which all participants in an economic transaction have full knowledge of the terms, conditions, and outcomes associated with the transaction.

Initial Allocation

The initial distribution of resources, goods, or assets among participants in an economy or market.

Inadvertent Breach

An unintentional failure to fulfill a contractual obligation or violation of a law, often due to oversight or misunderstanding.