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CAIE A-Level Economics A2 7.7.5 Principal Agent Problem Questions

Practise explaining ownership-control separation, manager objectives and incentive policies that address the principal-agent problem in A2 questions.

Syllabus
2026–2028
Course
Economics 9708
Level
A2

Exam points

  • Explain the principal-agent problem arising from separation of ownership and control and policies that reduce divergence.

CAIE A-Level Economics A2 7.7.5 Principal Agent Problem Questions question 1

[Maximum number: 1]

What is most likely to increase the principal-agent problem?

A

ensuring the actions of agents are known by the managers

B

linking the rewards of managers with the profitability of the firm

C

removing from managers the opportunity to hold shares

D

preparing contracts that compel agents to work in the interest of the principal

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