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Agency problems arise from incomplete and asymmetric information as principals attempt to motivate agents to act in their interest. Incomplete and asymmetric information, conflicting incentives and imperfect monitoring can result in outcomes undesirable for the principal. The key to mitigating such problems is in the efficient design of incentive systems, broadly defined. Agency problems in business relationships are pervasive both within and between organizations and arise in relationships between employers and employees, shareholders and managers, and buyers and suppliers.
KeywordsMoral Hazard Asymmetric Information Adverse Selection Agency Problem Initial Public Offering
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