Answer to Question #288229 in Microeconomics for Likenaw

Question

Give an example of a principal-agent problem in Ethiopia and suggest a resolution? Design

an incentive contract to address the principal-agent problem you identified?

Answer 1

The principal agent problem arises when the interests of the CEO do not align with the shareholders.

Not all workers necessarily want to work as hard as their managers would like. So to prevent workers from slacking, management would have to implement some form of monitoring the employees. Or perhaps, blocking internet sites such as Facebook and Twitter which are known to drain productivity.