QUESTION4 Which of the following statements concerning government intervention i
ID: 1130350 • Letter: Q
Question
QUESTION4 Which of the following statements concerning government intervention in the economy are correct? O The principal-agent problem is more serious in govenment than in the private sector. O The principal-agent problem is less serious in government than in the private sector According to F.A. Hayek, governments lack the necessary information for timely and correct economic decisionmaking. O According to FA. Hayek, decentralized markets lack the necessary information for timely and correct economic decisionmaking. Rather than being a bulwark against monopoly, government is quite likely the biggest cause of monopoly power in market economies. QUESTION 5 Which of the following statements correctly reflect the findings of a recent study using data from 75 countries on the motivation for government regulation of new firms? O The evidence strongly favored the view that the primary motivation for the regulation of new firms was to protect consumers and reduce negative externalities. The evidence strongly favored the view that the primary motivation for the regulation of new firms was to benefit government bureaucrats or their political supporters. Countries with more regulations had less pollution, higher-quality consumer products, and better health than countries with fewer regulations. O More democratic countries tend to have fewer regulations. QUESTION 6 Which of the following statements concerning the rule of law index is most accurate? O The rule of law index is negatively correlated with factor accumulation and productivity accross countries O The rule of law index is negatively correlated with factor accumulation but positively correrelated with productivity accross countries O The rule of law index is positively correlated with factor accumulation but negatively correrelated with productivity accross countries. O The rule of law index is positively correlated with factor accumulation and productivity accross countries.Explanation / Answer
ans 4=option 1
The principal-agent issue is more serious in the public sector.
The principal-agent issue takes place when persons in a department of an organization encounter incentives to pursue departmental objectives which conflict with the overall aims of the organization. There are in-built differences between the public & private sectors which hamper its successful implementation by the government. Private companies have a clear goal – to maximize profits for their stakeholders. This necessitates risk management & future planning. For instance, a loan officer’s task is not only disbursing loans but to make sure that they are profitable. He must strike balance between the risks of excessively strict lending criteria against the risks of excessively lenient ones. When the state involves with implicit & explicit guarantees, this balancing act is distorted. Government can’t use market mechanisms as by definition it is a monopoly , & this leads to incentives unique to governmental actors. In public sector this distortion is in-built .