A key aspect of the principal-agent problem is that
A) the principal cannot perfectly monitor the agent's actions.
B) the principal can perfectly monitor the agent's actions.
C) the output level does not depend on the agent's actions.
D) the principal is always risk averse.
Question 2
We can say that a contract is able to prevent moral hazard when
A) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-averse people.
B) it eliminates production inefficiencies due to moral hazard without shifting risk to risk-loving people.
C) it shifts risk to risk-loving people.
D) it eliminates production inefficiencies due to moral hazard and shifts risk to risk-averse people.
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