introduction to the agency law

Question 1

what two categories does the gen theory of agency break into

Answer 1

Principal – ie the owner
Agent – ie employees

Question 3

What are agency costs?

Answer 3

Agency costs refer to the costs incurred by the principal due to having an agent.

Question 4

What is a key problem associated with agency costs?

Answer 4

A key problem is the misalignment of incentives, where agents may not work effectively.

Question 5

Why might agents have an incentive not to work?

Answer 5

Agents may not work because they receive payment regardless of their performance.

Question 6

What negative actions might agents take?

Answer 6

Agents may steal from the principal or take customers to pursue their own interests.

Question 7

What does a principal generally want regarding agency costs?

Answer 7

A principal generally wants the benefits of agency to outweigh the costs for the business to function effectively.