Question 1. 10 points) Both Berkley and Oakley are large public corporations with subsidiaries throughout the world. Berkley uses a centralized approach and makes most of the decisions for its subsidiaries. Oakley uses a decentralized approach and its subsidiaries make many of their own decisions.

a. Would the agency problem be more pronounced for Berkley or for Oakley? Explain.

b. Would agency costs likely be higher for Berkley or Oakley? Why?

c. Discuss a major advantage and a major disadvantage to a centralized approach such as Berkley uses.

d. Discuss a major advantage and a major disadvantage to a decentralized approach such as Oakley uses.

e. Which is better, a centralized or decentralized approach? Explain.