3. Individual Problems 21-3

Which of the following is a characteristic of principal-agent conflicts that often exist in a firm?

• Managers generally have a shorter time horizon than owners; thus, managers do not fully take into account the future long-run profitability of the firm.
• Managers do not always operate in the best interest of owners because owners are generally more risk averse than managers.
• Firms can usually find solutions that reduce agency costs without increasing monitoring or incentive costs.