Firm/Dimension Supplier 1 Supplier 2 Firm A Firm B Previous business YES (and positive) NO interaction buyer- seller. Firm size Large Small Medium Medium Owner likes Yes No No No gambling. Uncertainty in the environment (e.g. related to prices of Low (pre-covid-19) High (in-covid-19) input resources, lead [delivery] times of resources, etc). Buyer has in-house project/technology YES NO competence. Focus the analysis on the ex post hidden action problem. Agency theory describes two main alternatives for how the principal should compensate/pay the agent. Which contract would you choose for the two respective supplier relationships (Firm A- Supplier 1 and Firm B-Supplier 2)? Remember to argue your choices! Question 2 Agency theory concerns itself with relationships where one party (the principal) delegates work to another party (the agent) who performs that work. a) Elaborate Agency theory. Your elaboration should include both the ex ante ("hidden information": how to choose the agent) and ex post ("hidden action": how to compensate/pay the agent) problem. b) We have two buyers (Firm A and Firm B). Both have selected a supplier to do a project for them. Both buyers need to analyze how to organize their respective projects. The table below outlines some relevant information for this analysis. Firm/Dimension Sunnlier 1 Firm B Firm A Supplier 2
Firm/Dimension Supplier 1 Supplier 2 Firm A Firm B Previous business YES (and positive) NO interaction buyer- seller. Firm size Large Small Medium Medium Owner likes Yes No No No gambling. Uncertainty in the environment (e.g. related to prices of Low (pre-covid-19) High (in-covid-19) input resources, lead [delivery] times of resources, etc). Buyer has in-house project/technology YES NO competence. Focus the analysis on the ex post hidden action problem. Agency theory describes two main alternatives for how the principal should compensate/pay the agent. Which contract would you choose for the two respective supplier relationships (Firm A- Supplier 1 and Firm B-Supplier 2)? Remember to argue your choices! Question 2 Agency theory concerns itself with relationships where one party (the principal) delegates work to another party (the agent) who performs that work. a) Elaborate Agency theory. Your elaboration should include both the ex ante ("hidden information": how to choose the agent) and ex post ("hidden action": how to compensate/pay the agent) problem. b) We have two buyers (Firm A and Firm B). Both have selected a supplier to do a project for them. Both buyers need to analyze how to organize their respective projects. The table below outlines some relevant information for this analysis. Firm/Dimension Sunnlier 1 Firm B Firm A Supplier 2
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Firm/Dimension
Supplier 1
Supplier 2
Firm A
Firm B
Previous business
YES (and positive)
NO
interaction buyer-
seller.
Firm size
Large
Small
Medium
Medium
Owner likes
Yes
No
No
No
gambling.
Uncertainty in the
environment (e.g.
related to prices of
Low (pre-covid-19)
High (in-covid-19)
input resources,
lead [delivery]
times of resources,
etc).
Buyer has in-house
project/technology
YES
NO
competence.
Focus the analysis on the ex post hidden action problem. Agency theory describes
two main alternatives for how the principal should compensate/pay the agent. Which
contract would you choose for the two respective supplier relationships (Firm A-
Supplier 1 and Firm B-Supplier 2)?
Remember to argue your choices!](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fca5908ae-3dca-4d0e-845d-ea9702ebebc0%2Fd416748d-c914-489c-b0a6-4f3badbcbf91%2F13bcfx_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Firm/Dimension
Supplier 1
Supplier 2
Firm A
Firm B
Previous business
YES (and positive)
NO
interaction buyer-
seller.
Firm size
Large
Small
Medium
Medium
Owner likes
Yes
No
No
No
gambling.
Uncertainty in the
environment (e.g.
related to prices of
Low (pre-covid-19)
High (in-covid-19)
input resources,
lead [delivery]
times of resources,
etc).
Buyer has in-house
project/technology
YES
NO
competence.
Focus the analysis on the ex post hidden action problem. Agency theory describes
two main alternatives for how the principal should compensate/pay the agent. Which
contract would you choose for the two respective supplier relationships (Firm A-
Supplier 1 and Firm B-Supplier 2)?
Remember to argue your choices!
Transcribed Image Text:Question 2
Agency theory concerns itself with relationships where one party (the principal)
delegates work to another party (the agent) who performs that work.
a) Elaborate Agency theory. Your elaboration should include both the ex ante
("hidden information": how to choose the agent) and ex post ("hidden action": how to
compensate/pay the agent) problem.
b) We have two buyers (Firm A and Firm B). Both have selected a supplier to do a
project for them. Both buyers need to analyze how to organize their respective
projects. The table below outlines some relevant information for this analysis.
Firm/Dimension
Sunnlier 1
Firm B
Firm A
Supplier 2
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