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 3 Discussion Bo...
Antivirus software has been around for many decades and over those years, it has proven very effective against malware attacks. But as cyber security has evolved over the years, so has the complexity...

Week 3 Discussion Board
Week 3 Discussion Board

Antivirus software has been around for many decade

Chapter 19 Health an...
1.Decrease obesity 2.Universal healthcare 3.Clean water access 4.Conflict theory 5.Talcott Parsons

Chapter 19 Health and Medicine
Chapter 19 Health and Medicine

1.Decrease obesity 2.Universal healthcare 3.Clean

Ch 40 1 Corporations...
) A property can be bought by A only when there has been an authorization provided to A by the Board of Directors. A property can also be bought by A when there has been an authorization provided to A...

Ch 40-1 Corporations Directors & Officers
Ch 40-1 Corporations Directors & Officers

) A property can be bought by A only when there ha

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.