The classic agency model is characterized by the principal-agent relationship, in which the principal hires one or more agents to perform some task on his or her behalf. The model is based on one important assumption about three aspects of the behavior of the principal and the agents. Even if this assumption is met, there is a potential agency problem, known as goal incongruence, when the goals of the agents are not aligned with the goals of the principal. 

a. State and briefly explain the assumption about the three aspects of the behavior of the principal and the agents in the agency model. 

b. What results-based approach can be used to align the goal of the agents and the principal in both the short-term and long-term? Provide examples.

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ANSWER A The principalagent model refers to the relationship between an asset owner or principal and the agent or person contracted to manage that ass... View the full answer