Which of the following are attempts to ease the principal-agent problem?
A) Stock Options.
B) Golden Parachutes.
C) Efficiency Wages.
D) All of the above.

Question

Quizplus · Accepted Answer

All of the given options are attempts to ease the principal-agent problem.

Stock options provide the agent with the right to purchase company stock at a predetermined price, which incentivizes them to increase the firm's stock price and perform well.

Golden parachutes are provisions in top executives' contracts that provide them with a significant payout if the company is acquired or they are terminated without cause. This serves as an incentive for executives to act in the best interest of the firm and avoid short-term gains at the expense of long-term stability.

Efficiency wages are wages that are higher than the market equilibrium to attract more talented employees and motivate them to work harder. It reduces turnover rates and improves job performance, which benefits the principal.

Which of the Following Are Attempts to Ease the Principal-Agent