Asked by sophia Northup on Sep 24, 2024
Verified
The ways to address agency costs include
A) gathering information about the agent's characteristics before hiring
B) gathering information about the agent's actions once hired
C) incentivizing agents to work on behalf of principals
D) all of the above
Agency Costs
The costs associated with resolving conflicts of interest between principals and agents, including monitoring and incentive expenses.
Principals
Individuals or entities that authorize agents to act on their behalf in business transactions.
Incentivizing Agents
Strategies to motivate individuals or entities acting on behalf of others or organizations towards desired behaviors or goals, often through rewards or benefits.
- Pinpoint methods for reducing agency expenses in a corporate setting.
Verified Answer
MH
Michaela Hocknell4 days ago
Final Answer :
D
Explanation :
All of the above ways, i.e., gathering information both before and after hiring, and incentivizing agents to work on behalf of principals, are effective in addressing agency costs. By gathering information about the agent's characteristics and actions, the principal can monitor the agent's work and take corrective actions. Incentivizing agents through performance-based compensations or monitoring systems can align the interest of the agents with that of the principal, reducing agency costs. Therefore, all the methods given in options A, B, and C are important to address agency costs.
Learning Objectives
- Pinpoint methods for reducing agency expenses in a corporate setting.