Describe an example you have experience with of the principal-agent problem (for example, you have a desire for your children to listen in school and do well, while for them, goofing off at school might be much more fun), and explain how incentives can be used to overcome the principal-agent problem (such as paying your children for good grades). Include in your explanation an analysis of the risks in using incentives.

 

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Example of PrincipalAgent Problem Consider a company where the shareholders principals hire managers agents to run the business on their behalf The sh... View the full answer