The principal-agent problem occurs:
A)when the principal has less information than the agent.
B)when the principal has more information than the agent.
C)when neither party has enough information.
D)when both parties have complete information.

Question

Quizplus · Accepted Answer

The principal-agent problem arises when there is an information asymmetry between the principal (the party delegating the work) and the agent (the party performing the work), with the agent typically having more information than the principal. This can lead to issues such as moral hazard and adverse selection.

The Principal-Agent Problem Occurs