Fill in the blanks: _____ is an important constraint in the moral-hazard problem because _____.
A)The budget constraint ----it ensures the principal has enough money to pay the agent
B)The participation constraint ---it ensures the agent chooses the action in the principal's best interest
C)The participation constraint ----it ensures the principal is willing to offer the contract
D)The incentive-compatibility constraint -----it ensures the agent chooses the action intended in the contract

Question

Quizplus · Accepted Answer

The incentive-compatibility constraint is crucial in addressing the moral-hazard problem because it aligns the agent's actions with what is intended in the contract, ensuring that the agent acts in a way that is beneficial to the principal.

Fill in the Blanks: _____ Is an Important Constraint in the Moral-Hazard