Agency problems occur when:
A)there is no information.
B)both parties have identical information.
C)both parties have limited information.
D)one party in a transaction has information that the other party does not possess.
E)None of the above is correct.

Question

Quizplus · Accepted Answer

Agency problems arise when one party, usually the agent, has more information or power than the other party, usually the principal. This information asymmetry can lead to conflicts of interest and issues of trust between the two parties. Therefore, choice D is the best answer, as it suggests that one party has information that the other lacks.

Agency Problems Occur When