Multiple Choice Quiz

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1		Complete contracting theory starts from the following two behavioural assumptions:
			A)	bounded rationality and self-interested behaviour.
			B)	complete rationality and self-interested behaviour.
			C)	bounded rationality and opportunistic behaviour.
			D)	complete rationality and opportunistic behaviour.
2		The principal–agent relationship entails that the principal
			A)	hires the agent.
			B)	is smarter than the agent.
			C)	provides guidance to the agent.
			D)	is hired by the agent.
3		Which of the following is not an ingredient of a principal–agent problem?
			A)	Conflict of interest.
			B)	Asymmetric information.
			C)	Equilibrium.
			D)	Surplus available.
4		A student wants to have his broken bicycle repaired. The costs of repair are unknown, but will be at least 12 for a repairman. The student is willing to pay at most 10 for the repair of his bicycle. Which ingredient of a principal-agent problem is not satisfied?
			A)	Conflict of interest.
			B)	Asymmetric information.
			C)	Equilibrium.
			D)	Surplus available.
5		A complete contract is characterised by
			A)	observable and verifiable information.
			B)	observable and non-verifiable information.
			C)	non-observable and verifiable information.
			D)	non-observable and non-verifiable information.
6		The hidden action problem entails
			A)	an ex ante information asymmetry.
			B)	an incentive compatibility constraint.
			C)	ex post information asymmetry.
			D)	a participation constraint.
7		Equilibrium behaviour in a hidden characteristics problem may entail
			A)	equality.
			B)	asymmetric information.
			C)	moral hazard.
			D)	adverse selection.
8		Incentive compatibility entails
			A)	a restriction on the rules of a contract in order to elicit desired behaviour.
			B)	a limit to the amount that the principal is willing to pay.
			C)	that at least the opportunity costs have to be paid to the agent.
			D)	that there is a conflict of interest.
9		Complete contracting theory conceives the firm as a
			A)	legal entity.
			B)	nexus of contracts.
			C)	production function.
			D)	social construction.
10		Who observed already that managers may go for their self-interest rather than the well-being of the company?
			A)	Berle and Means.
			B)	March and Simon.
			C)	Arrow and Debreu.
			D)	Simon and Garfunkel.