Principal-agent theory deals with the problem of:
A) designing an efficient contract between the employer and the employee when there are incentives to cheat or shirk.
B) failed negotiations between workers and their employees.
C) designing an optimal compensation when there is perfect information.
D) designing an optimal compensation system to reduce turnover.

Question

Quizplus · Accepted Answer

Principal-agent theory primarily addresses the issues that arise in situations where there is an asymmetry of information and differing objectives between a principal (such as an employer) and an agent (such as an employee), including the challenges of designing contracts that align the interests of both parties and mitigate the risks of shirking or dishonest behavior.

Principal-Agent Theory Deals with the Problem Of