The Principal-Agent Problem: Definition & Solutions

Instructions:

Choose an answer and hit 'next'. You will receive your score and answers at the end.

question 1 of 3

The principal-agent problem is best defined as _____.

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1. The agency problem exists between one of Apple's shareholders and Tim Cook. When Cook decides to pursue projects that are not profitable, which of the potential solutions to the agency problem is he likely executing?

2. The principal-agent problem is influenced by three characteristics found in agents. Which characteristic is influenced by the constraints of knowledge, capability and time?

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About This Quiz & Worksheet

Find out what you comprehend about the principal-agent problem with this interactive quiz and worksheet. Questions will cover areas of study that include the definition of the principal-agent problem and an agency problem where an investor would seek a non-profitable solution.

Quiz & Worksheet Goals

Determine how much you know about the following:

  • The constraints of knowledge, capability and time in the principal-agent problem
  • How a company's CEO can limit the agency problem
  • Factor of the principal-agency problem where a seller might be deceitful in order to sell a product

Skills Practiced

  • Information recall - access the knowledge you've gained regarding how capability and time are influential with regard to the principal-agency problem
  • Knowledge application - use your knowledge to answer questions about how employees/shareholders conduct themselves in the operation of a company or business
  • Reading comprehension - ensure that you draw the most important information from the related lesson on the principal-agency problem

Additional Learning

To learn more about this subject, the lesson entitled The Principal-Agent Problem: Definition & Solutions will teach you about these areas of study:

  • What the principal means in the context of the principal-agent problem
  • Agency costs and how they're defined
  • How incentives are used to encourage productivity
  • What customized employment means
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