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The principal-agent problem: O A. eliminates costly state verification. B. occurs because owners have incomplete information
The free rider problem: O A. results from the production of information being much like a public good where exclusion is not
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Answer #1

answer: B

  • problem of motivating one party (the agent) to act on behalf of another (the principal)
  • agency problems arise when the incentives between the agent and the principal are not perfectly aligned

answer: A

  • If many (not all) people work towards achieving a collective goal, everyone is better off. Every who pays, gains. But people who do not pay (free riders) also benefit.
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