Suppose that a publisher is considering how to pay an author for writing a book. The publisher would like the author to put forth his maximum effort, but the publisher is unable to observe the author's effort. In this example, the principal is ____.
A) the publisher
B) the author
C) neither the publisher nor the author
D) both the publisher and the author

Question

Quizplus · Accepted Answer

The principal in this scenario is the publisher, as they are the party interested in contracting the author (the agent) to perform a task (writing a book) but cannot directly observe the effort put into that task.

Suppose That a Publisher Is Considering How to Pay an Author