Discuss in detail the two ways (screening and signaling) in
which the principal or the agent can try to resolve the problem of
adverse selection. Give an example of screening and signaling and
explain how the parties involved benefit from these strategies.
Discuss the various ways in which corporations are governed. b) What are principal-agent conflicts and principal-principal conflicts and why are they important to governance?
A principal has different options of setting wages and the Agent
has different levels of work. Consider this model with the
following special values:
u(2√w); dH=15, dL=0, g=300, m=200, b=100,
wb=wage base=0
eH results in a probability of profit levels g, m, b
as 0.5, 0.3, 0.2
eL results in a probability of profit levels g, m, b
as 0.2, 0.3, 0.5
Assuming the Principal chooses a pure wage scheme, what would be
the expected payoffs for the Principal and...
What is the principal-agent problem? What are three ways in which firms try to cope with it? The principal-agent problem is the problem of A. devising compensation rules that induce an agent to act in the best interest of a principal B. the principal stock owner of a firm finding an agent at the NYSE who will manage his account C. the agent setting prices that will benefit the principal D. communicating the principal's wishes to the agent Three ways of attempting to cope with the principal-agent...
The two general ways of addressing the Principal-Agent problem
are
Prosecution and Conviction
Alignment and Oversight
Treasury and the Federal Reserve
Accounting and Auditing
A principal-agent problem can arise when
an insurance agent sells a policy to a buyer who uses it as an
incentive to behave badly.
a principal hires an agent to do something on their behalf, but the
principal cannot perfectly observe the agent's actions.
an agent hires a principal to do something on their behalf, and the
agent can observe the principal's actions.
a principal uses an agent to accomplish a task the principal wants
credit for completing.
Which of...
Describe the differences between principal–agent conflicts and
principal–principal conflicts. What kind of corporate governance
reforms can be introduced to protect the shareholders’ interest,
particularly minority shareholders?