A drawback of separating ownership from control by creating a firm is:
A) the losses of specialization.
B) increased transaction costs.
C) the principal-agent problem.
D) synergies of team production.

Question

Quizplus · Accepted Answer

Separating ownership from control creates a principal-agent problem where the interests of the owner (principal) and the manager (agent) may not align. This can lead to a situation where the manager may pursue their interests at the expense of the owner's interests. This increases agency costs and can lead to inefficiencies in the management of the firm.

A Drawback of Separating Ownership from Control by Creating a Firm