Question

Which scenario below will likely result in a least effective principal-agent relationship?

		The job to be performed by the agent is very simple: the agent only needs to sit on a chair for 5 hours a day; the principal makes money by broadcasting, 5 hours a day, the sitting of the agent (some people seem to derive enjoyment from watching a person sitting on a chair for 5 hours a day), and pays the agent $500 per month for doing that.
		The job to be performed by the agent is very simple: the agent only needs to sit on a chair for 5 hours a day; the principal makes money by broadcasting, 5 hours a day, the sitting of the agent (some people seem to derive enjoyment from watching a person sitting on a chair for 5 hours a day), and pays the agent 10% of the revenue generated from broadcasting per month for doing that.
		The job to be performed by the agent is very simple: the agent only needs to come up with some number of jokes per month; the principal makes money by selling those jokes, and pays the agent each month $20 per joke plus $100.
		The job to be performed by the agent is very simple: the agent only needs to come up with some number of jokes per month; the principal makes money by selling those jokes, and pays the agent $500 per month for doing that.

Answer 1

C) The job to be performed by the agent is very simple: the agent only needs to come up with some number of jokes per month; the principal makes money by selling those jokes, and pays the agent each month $20 per joke plus $100.

Among all, this scenario is least effective principal-agent relationship. The main cause of principal-agent relationship problem is the compensation issue and when agent knows more information that the principal. Here, in this scenario, as the agent only makes the jokes for the principal and then the principal makes money from those jokes so it can be said that agent has more information than the principal. Also, the pay rate is very less given to agent which also causes some issue. The best way to compensate an agent is sharing a percentage of revenue to the agent which can be seen in option B.

Hope this helps :)