Question

Which of the following is a case of the principal-agent

problem?

A The ice cream man offers you $3 for an ice cream cone. You think this is too high and try to convince him to lower the price to $2, but he won’t budge.

B A car dealer tries to sell you a car. She lowers the price and throws in perks. What she doesn’t know is that the car is way outside your budget and there is no way you’ll buy it.

C You pick one hotel over another because its website advertises having a pool. After you arrive, you find out the pool is closed for the season. If you’d known this, you would have picked the other hotel.

D Your doctor could diagnose your symptom herself as part of your regular visit. But she receives a bonus for referrals, so she recommends you make an appointment with a specialist.

E None of these

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Which of the following is a case of the principal-agent

Solution