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Role of External Uncertainty in Hidden-Action Problems
Hidden-action problems are particularly pronounced in relationships that extend over time after a contract is signed, especially when external uncertainty is present. This uncertainty, which refers to random factors beyond the agent's control, makes it difficult for the principal to determine if a poor outcome resulted from the agent's unobservable actions or simply from bad luck. This ambiguity complicates the principal's ability to hold the agent accountable.
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The Economy 2.0 Microeconomics @ CORE Econ
Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
Introduction to Microeconomics Course
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