Suppose transactions costs are created by a principal-agent problem. If the objective is economic efficiency, who should be made liable for damages resulting from the interaction of the principal and the agent?
a. The principal should be liable for all damages.
b. The agent should be liable for all damages.
c. Liability for damages should be equally split between the principal and the agent.
d. The assignment of liability is irrelevant according to the Coase Theorem.
b. The agent should be liable for all damages.
You might also like to view...
If the quantity of a good or service demanded at the existing price is greater than the quantity supplied, ________ exists
A) a shortage B) a surplus C) market equilibrium D) All of the above are possible.
A local electricity-generating company has a monopoly that is protected by an entry barrier that takes the form of
A) a perfectly inelastic demand curve. B) economies of scale. C) control of a key raw material. D) network externalities.
Sailboats and motorboats share Emerson Lake, which nobody owns. The sailors say the motorboats are a hazard; the motorboaters say it is the other way around. Frequent collisions occur, with many injuries and some deaths every year. If the City of Emerson were to buy the lake itself,
a. the problem would be solved, because the lake would have an owner b. the problem would be solved, because no one could use the lake c. the city would still have to assign property rights so that use of the lake would be efficient d. the city would give the right to use the lake to the larger group e. the city would give the right to use the lake to the richer group
In the classical model, beginning from an equilibrium in which the government is running a budget surplus,
a. this will lower the wage rate b. the demand for loanable funds will be horizontal c. an increase in government spending will crowd out more than an equal amount of private spending d. an increase in government spending will crowd out an equal amount of private spending e. an increase in government spending will crowd out less than an equal amount of private spending