Session 6 Flashcards Preview

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Flashcards in Session 6 Deck (3):
1

Which several types of information asymmetries are possible?

- ex ante: adverse selection because of hidden information
- ex post: moral hazard because of hidden action

2

Which solutions exists to solve the CEO's problem?

- screening
- monitoring
- incentives

3

How should a CEO be paid?

- value of the firm depends strongly on R&D output --> high powered incentives
- outcome of the research is often uncertain --> low-powered incentives
- CEO is risk-averse --> low-powered incentives