Source of Principal's Power: The Ability to Exclude
The power that principals (lenders and employers) hold over agents (borrowers and employees) stems from their ability to refuse to engage in or continue a transaction. By simply refusing to deal with an agent, a principal has the power to move them from a position of inclusion (represented as a 'green box' for successful agents) to one of exclusion (a 'purple box' for would-be agents). This unilateral ability to exclude is the fundamental reason why lenders and employers have power in these relationships.
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Library Science
Economics
Economy
Introduction to Microeconomics Course
Social Science
Empirical Science
Science
CORE Econ
Ch.9 Lenders and borrowers and differences in wealth - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
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Critiquing a Historical Perspective on the Industrial Revolution
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In a principal-agent relationship, such as between an employer and a potential employee, the principal's power stems primarily from their ability to offer more favorable contract terms (like higher wages) than their competitors.
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In a principal-agent relationship, such as between an employer and a potential employee, the principal's most fundamental power stems from their unilateral ability to ____ the agent from the transaction.
In a principal-agent relationship, such as between an employer and a potential employee, the principal's power stems primarily from their ability to offer more favorable contract terms (like higher wages) than their competitors.