These questions concentrate on the game theory of money and banking.
Consider the Principle-Agent problem in relation to banking.
This is the problem.
A person is a Vice-President of a Bank, serving as the head of Commercial Lending. They receive a substantial bonus based on the volume and profitability of their department. The department both makes loans and collects the loans. Answer the following questions using this information.
2-b-i. Simply identify the Principal and the Agent in this problem?
2-b-ii. What is the moral hazard Problem regarding the Vice-President and his bonus?