Question: The principal-agent problem was discussed in Chapter 4. The way of resolving it is to draw up contracts which will protect the principal from the

The principal-agent problem was discussed in Chapter 4. The way of resolving it is to draw up contracts which will protect the principal from the opportunism of the agent through

(a) provision of incentives to the agent,

(b) monitoring of the agent's performance, and

(c) penalising the agent if there is non-performance. Compare and contrast the agency theory approach with the standard demand and supply model of the labour market in this chapter.

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