Tony works as a yacht cleaner and is employed by a number of people to clean yachts whilst they are moored in Brisbane. Angela has employed Tony to clean her yacht, the Normanby Princess. However, Angela is based in the UK and the yacht is moored in Brisbane, so Angela cannot inspect the yacht unless she flies to Australia. Which of the following statements are true: As Tony could clean more yachts if he cleans Angela's yacht quickly, he will have an incentive to clean the yacht quickly and will likely do a worse job. As Tony is working on behalf of Angela he will follow her wishes exactly. This is an example of the Principal-Agent Problem as the two parties have the same objectives but Angela cannot directly observe Tony's actions. This example is best described as an adverse selection problem.

Tony works as a yacht cleaner and is employed by a number of people to clean yachts whilst they are moored in Brisbane. Angela has employed Tony to clean her yacht, the Normanby Princess. However, Angela is based in the UK and the yacht is moored in Brisbane, so Angela cannot inspect the yacht unless she flies to Australia. Which of the following statements are true: As Tony could clean more yachts if he cleans Angela's yacht quickly, he will have an incentive to clean the yacht quickly and will likely do a worse job. As Tony is working on behalf of Angela he will follow her wishes exactly. This is an example of the Principal-Agent Problem as the two parties have the same objectives but Angela cannot directly observe Tony's actions. This example is best described as an adverse selection problem.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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