No explanation Which of the following statements is true? Adverse selection exis

Question

No explanation

Which of the following statements is true?

Adverse selection exists because of agency problems between owners and managers.

Incentive conflicts exist within companies because contracting is usually costly.

Contracts cannot fully solve incentive problems even when contracts are costless to design, implement, and enforce.

Since contracts are costly to design, implement, and enforce, they cannot fully solve incentive problems

Adverse selection exists because of agency problems between owners and managers.

Incentive conflicts exist within companies because contracting is usually costly.

Contracts cannot fully solve incentive problems even when contracts are costless to design, implement, and enforce.

Since contracts are costly to design, implement, and enforce, they cannot fully solve incentive problems

Explanation / Answer

Adverse selection exists is true because all the information which is available to manager at the time of decision making is not available to the owner, hence the owner cannot be sure that the manager had made the correct decision .

Hence, the correct option is A

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