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1. Why is the principle agent-problem important in economics? 2. what two critical assumptions underlie the principle agent-problem? 3....

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Economics

1. Why is the principle agent-problem important ineconomics?

2. what two critical assumptions underlie the principleagent-problem?

3. Provide two critiques or counters of the assumptions outlinedabove.

Answer & Explanation Solved by verified expert
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1 The problem with the principalagent arises when a principal assigns an action to another person agent but the principal does not have complete information on how the agent will behave Second the principals interests diverge from the agents interests meaning the result is less favorable than intended by the principal For example a shareholder principal wants to maximize profits for his business He hires a agent manager to run the business Nevertheless the owner can    See Answer
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