focus will be to think through what asymmetric information, moral hazard, and adverse selection have to do with corporate hiring staff accountants. As we saw in the week 7 discussion in contracts there maybe something called the agency problem. In employment contracts we have a principal, the organization hiring, and the agent, the potential employee. When hired, the employee is expected to carry out/act on behalf, of the agent's best interest. I can be very hard and costly for principal to ensure that the agent is conducting the principal business in the best interest of the principal.
Instructions
Consider the following policy:
Many corporations require all staff accountants to hold not only a degree in accounting but also to have a CPA license. There is a substantial higher cost to hiring CPAs.
Assignment
In your discussion post, address the following:
Speculate on why corporations do not lower their explicit payroll cost by hiring accountants without a CPA. Consider how asymmetric information, moral hazard, and adverse selection may the perception of risk?