Suppose Transactions Costs Are Created by a Principal-Agent Problem

Multiple Choice

Suppose transactions costs are created by a principal-agent problem.If the objective is economic efficiency,who should be made liable for damages resulting from the interaction of the principal and the agent?

A) The principal should be liable for all damages.
B) The agent should be liable for all damages.
C) Liability for damages should be equally split between the principal and the agent.
D) The assignment of liability is irrelevant according to the Coase Theorem.