Multiple choice questions:
1. A good compensation scheme:
A. Maximizes the agent's utility.
B. Anticipates how an agent will game the scheme.
C. Does not subject a risk-averse agent to risk
D. Accompanies Centralized decision-making authority
2. Principal-agent relationships:
A. reduce monitoring costs
B. Occur because managers have good information about employees
C. are not related to asymmetric informaiton
D. are subject to moral hazard problems.
3. All of the costs associated with a principal interacting with an agent are called:
A. opportunity costs
B. agenc costs
C. monitoring costs
d. sunk costs
4. In order to create an effective incentive compensation scheme, you must have:
a. adequate performance measures.
b. unlimited funds
c. a flat management structure
d. none of the above
5. Decentralization of decision-making authority is consistent with which of the following?
a. A trend of stronger, more active CEO's
b. Shrinking costs of computing bandwidth, which allows information to be inexpensively aggregated from geographically diverse business units.
c. Development of micro computing resources at the corporate, divsion, and employee level.
d. Reduction in the use of incentive compensation.