The principal-agent problem arises primarily because:
A)principals and agents work in a team,leading to free-rider problems
B)principals and agents have common interests
C)principals pursue some of their own objectives that may conflict with the objectives of the agents
D)agents pursue some of their own objectives that may conflict with the objectives of the principals

Question

Quizplus · Accepted Answer

The principal-agent problem arises when agents pursue some of their own objectives that may conflict with the objectives of the principals they are supposed to represent. This creates a situation where the interests of the principal and the agent are not aligned, leading to potential conflicts of interest and agency costs for the principal. The principal-agent problem is particularly relevant in situations where the principal cannot directly monitor or control the actions of the agent, such as in large organizations or when outsourcing tasks to third-party contractors.

The Principal-Agent Problem Arises Primarily Because