Student Solution

-->

"Education is the most powerful weapon which you can use to change the world”
– Nelson Mandela

1 University

1 Course

1 Subject

Download Solution

Related Solution

Week 2 Assignment (1...
In 1995, Citizens For a better Environment, an ecological assurance association, documented an authorization activity for alleviation under the Emergency Planning And Community Right-To-Know Act of 1...

Week 2 Assignment (1)
Week 2 Assignment (1)

In 1995, Citizens For a better Environment, an ec

Week 7 Discussion_16...
E-business also termed electronic business, means that business transaction takes place online with the help of the internet. These days’ businesses are in trend as people are busy with their life, th...

Week 7 Discussion
Week 7 Discussion

E-business also termed electronic business, means

Unit VII Case Study_...
a. For the case of the Bend, Oregon, it was important to consider the issue of the effects of fire when considering the extensive fire. This is because the effects of extensive fire had been felt and...

Unit VII Case Study
Unit VII Case Study

a. For the case of the Bend, Oregon, it was import

Managerial Economics_Module 9 Assignment

Managerial Economics_Module 9 Assignment

Q 1. Explain how principal-agent relationships can lead to incentive conflicts. 2. Analyze bad decisions using the three factors of who makes the decision, who has the information, and who has incentives. 3. Describe how transfer pricing between divisions can lead to less profitable organizations. 4. Explain how vertical integration can reduce incentive conflicts.

View Related Questions

Solution Preview

View Complete Solution
The problem of principle agent occurs when it is agreed by one party (that is the agent) to function in support of the other party (that is the principle) in return for certain incentives. Huge costs may be incurred by such a contract for the agent. This causes interest conflict and moral hazards problems. The problem occurs when an environment is created by a principal where incentives of agent aren’t aligned with the incentives of the principle. The onus is generally on the principal for incentives to be created for the agent in order to make sure that they function as wanted by the principal.