1)What is agency theory?

2)Which of the following has the fewest characteristics of public good? Explain.

a. government-provided public school lunches

b. national defense

c. the fire department

d. the light from a lighthouse

1)The agency theory is a concept in economics and management that describes the conflict of interest between decision-makers and people whose money is managed by decision-makers. In this theory, the people managing someone's money are called the agents, and the money owners are known as principles. The agency theory describes the issues between these two parties and tries to explain how to resolve them. In most cases, this type of conflict arises between corporate managers and shareholders but it can also refer to an issue between a portfolio manager and its client, etc. The concept suggests the ways to reconcile the different interests for the benefit of all.

2)The correct answer is A; the government provided public school lunches.

Public goods have various characteristics that distinguish from other goods. For instance, they are excludable, meaning that people should not be excluded from accessing the service or receiving the goods. Secondly, they should not have a rival in consumption such that the usage of the good does not affect the ability of the other to access it. The government provided the school has the fewest characteristics due to various reasons. For instance, if some students receive more packets of lunch, the other can miss hence reducing its ability to become a public good. Moreover, it's easy to exclude some students from accessing their service in school.