Author Question: The best contract a principal can make with an agent gives the agent all profit after paying the ... (Read 53 times)

abern · **on:** Jul 1, 2018

The best contract a principal can make with an agent gives the agent all profit after paying the principal a fixed fee.

Indicate whether the statement is true or false

Question 2

Contracts can avoid transaction costs.

Indicate whether the statement is true or false

Pswine · **Reply #1 on:** Jul 1, 2018

Answer to Question 1

F This contract is good for motivating the agent but it also forces the agent to bear risk, something the agent may not wish to do.

Answer to Question 2

F Contracts lead to transaction costs because every possible eventuality cannot be anticipated by parties to the contract and protected against.