The most efficient way to overcome the principal-agent problem in a firm is to
A) increase the level of vertical integration within the firm.
B) provide stock options to managers.
C) downsize the existing workforce.
D) organize economic activities within the firm.

Question

Quizplus · Accepted Answer

The principal-agent problem is a major disadvantage of organizing economic activity within firms, as opposed to within markets. One potential way to overcome the principal-agent problem is to give stock options to managers, thus making them owners.

The Most Efficient Way to Overcome the Principal-Agent Problem in a Firm