CFA Practice Question
In which of the following cases would you most likely not expect to confront the principal-agent problem?
A. Shareholders employing a manager to run a company.
B. An entrepreneur developing and bringing to market a product whose demand is unknown.
C. Employing a painter to paint your house.
Explanation: The principal-agent problem occurs when the owner (principal) who will benefit from the effort made by the employee/contractor (agent) cannot observe (or legally prove) the effort made by the agent on the principal's behalf. This can lead to the agent doing things to benefit the agent rather than the owner.
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