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Economics
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21 May 2019

What is the principal-agent problem? When will the principal agent problem be most severe? Why might there be a principal-agent problem between the stockholder owners and the managers of a large corporation?

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Patrina Schowalter
Patrina SchowalterLv2
24 May 2019
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Related questions

How does paying a commission help to solve the principal-agent problem between the owners of a business and the sales force?
Sales personnel, whether selling life insurance automobiles or pharmaceutical typically get paid on commission instead of a straigh hourly wage. How does paying commission help to solve the principal agent problem between the owners of a business and the sale force?

3. Principal-agent relationships:

a. reduce monitoring costs

b. occur because managers have good informaiton about employees.

c. are not related to asymmetric information

d. are subject to moral hazard problems.

5. Princpal-agent problems:

a. occur when firm managers have more incentive to maximize profit than shareholder do.

b. would be reduced if firm owners had better information about the actions of the firm's managers.

c. help explain why equity investments from outside owners are an important finanicing source for firms.

d. are increased as more information is shard between the parties

6. In order to create an effective incentive compensation scheme, you must have

a.adequate performance measures

b. unlimited funds

c. a flat management structure

d. None of the above

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