write:•The principal can observe the outcome of the agent’s actions but cannot observe the agent’s behavior or effort level. •The costs or lost benefits the principal suffers wh

2eSlide # 3Q1: Agency Theory•In agency theory
a principalcontracts with an agent to act on his or her behalf.•The principal can observe the outcome of the agent’s actions
but cannot observe the agent’s behavior or effort level.•The costs or lost benefits the principal suffers when the agent does not act in the best interests of the principal are called agency costs.