8.3 Homework Assignment Fall I 2019.docx - 8.3 Homework...

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8.3 Homework Assignment BUS 5421 Managerial Economics October 17, 2019
Chapter 21, Individual Problems 21-1, Real Estate Agents An agent acts on the behalf of a principal, often times agents and principals have a different set of goals and preferences. Most times the agent has more information than the principal attributing to the principal-agent incentive conflict. (Froeb et al., 2018) The real estate agent (agent) makes decisions on behalf of the homeowner (principal). Real estate agents are better informed of the housing market while the home owner has to decide which real estate agent to hire (creating an adverse selection). Once the selection is made the homeowner has to motivate the real estate agent to sell at a higher price (creating moral hazard). Typically real estate agents are paid by a percentage of the sold price of the property. Selling for a higher price could mean higher compensation. However, the agent is faced with incentive

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