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

Chapter 9 Assignment...
The American Red Cross has a presence in almost every community in the nation and around the world. The organization presents itself by doing national and international press releases, local press rel...

Chapter 9 Assignment
Chapter 9 Assignment

The American Red Cross has a presence in almost ev

Chapter 9 Discussion...
? In my opinion, I honestly don't believe in an parent lack of social responsibility just off the simply fact of what the parents thinks or have seen from the vaccinations. Some parents might not want...

Chapter 9 Discussion
Chapter 9 Discussion

? In my opinion, I honestly don't believe in an pa

Week 4 - Discussion...
One situation that technology and self-service have helped create and deliver a customer benefit package is the self-service by my cable provider. The self-service is done online and you are provided...

Week 4 - Discussion Forum 1
Week 4 - Discussion Forum 1

One situation that technology and self-service hav

Managerial Economics_Module9 Assignment

Managerial Economics_Module9 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. For instance, the occurrence of the problem of principal-agent among the companies and agencies of ratings.