Question: Identifying agency problems, costs, and resolutions Explain why each of the following situations is an agency problem and what costs to the firm might result from it.

Suggest how the problem might be handled short of firing the individual(s) involved.

1. The front desk receptionist routinely takes an extra 20 minutes of lunch time to
   run personal errands.
2. Division managers are padding cost estimates so as to show short-term efficiency
   gains when the costs come in lower than the estimates.
3. The firm’s chief executive officer has had secret talks with a competitor about the

possibility of a merger in which she would become the CEO of the combined

firms.

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