Identifying agency problems, costs, and resolutions Explain why each of the following situations is an agency problem and what costs to the firm might result

from it$.$ Suggest how the problem might be handled short of firing the individual$($s$)$ involved.

a$.$ The front desk receptionist routinely takes an extra $20$ minutes of lunch time to run personal errands.

b$.$ Division managers are padding cost estimates so as to show short$-$term efficiency gains when the costs come in lower than the estimates.

c$.$ The firm's chief executive officer has had secret talks with a competitor about the possibility of a merger in which she would become the CEO of the combined

firms.

d$.$ A branch manager lays off experienced full$-$time employees and staffs custr.t$.$mer service positions with part$-$time or temporary workers to lower employment costs

and raise this year's branch profit. The manager's bonus is based on profitability.

the tirm is willing to merge.

C$.$ An open bidding process may encourage other firms to offer a price closer to the fair market value of the firm.

D$.$ There is no agency cost. Secrecy must be maintained in order to get the best possible price for the firm.

d$.$ A branch manager lays off experienced full$-$time employees and staffs customer service positions with part$-$time or temporary workers to lower employment costs

and raise this year's branch profit. The manager's bonus is based on profitability. Which of the following statements correctly identifies the cost and possible solution

for the agency problem in this case? $($Choose all correct responses.$)$

A$.$ Generally part$-$time or temporary workers are not as productive as full$-$time employees. These workers have not been on the job as long to increase their

work efficiency.

B$.$ This manager is getting rid of good employees to increase short$-$term profits.

C$.$ One approach to reducing the problem would be to give the manager performance shares if certain stated goals are met.

D$.$ Implementing a stock incentive plan tying management compensation to share price would also encourage the manager to retain quality employees.