Sources of The Costs
The costs consist of two main sources:
- The costs inherently associated with using an agent (e.g., the risk that agents will use organizational resource for their own benefit) and
- The costs of techniques used to mitigate the problems associated with using an agent—gathering more information on what the agent is doing (e.g., the costs of producing financial statements) or employing mechanisms to align the interests of the agent with those of the principal (e.g. compensating executives with equity payment such as stock options).
Read more about this topic: Agency Cost
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