5. Explain the Principal-Agent problem in private enterprises. Cite an example or two to show the...

5. Explain the Principal-Agent problem in private enterprises. Cite an example or two to show the seriousness of the problem in even some of the biggest North American businesses. How does a Japanese CEO differ from his North American counterpart?

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Expert Solution

Principal-agent-problem is a situation in which,a person is able to take decisions or actions,on behalf of or which may affect another person.This may occur when one party works in favour of another party expecting some incentives.This will lead to moral conflict and there will be opposing interests.
- Too Big to Fail is an example of this.In this,some countries became more significant for the government,so that,whatever they do,the government will bale them.This will create moral hazard.where the agents will not be paid for the right thing they do,as they know,they won't be blamed at the end.This happened during the recession time ,when America bailed out certain banks and companies like:AIG and JPMorgan Chase
Japanese CEO and North American CEO:
- Japanese CEO works in every division of the company and will know people all around.While,American CEO does not know the people above or below him.
- Japanese CEOs works in one company,while American CEO's work in multiple companies.
- Japanese CEOs are paid less when compared to American CEOs.

Rahul Sunny answered 1 year ago

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