According to agency theory, monitoring would be cheaper and more effective if
Blank
______.

Question

According to agency theory, monitoring would be cheaper and more effective if 
Blank
______.

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Question restatement: According to agency theory, monitoring would be cheaper and more effective if 
Blank
______.

Option 1: 'performed without employees' knowledge' — This suggests covert monitoring, which undermines transparency and trust, and there is no basis in agency theory for cheaper, more effective monitoring simply because employees are unaware; in fact, lack of transparency can create moral hazard and resentment, making monitoring less effective.

Option 2: 'conducted by executives' — Agency theory distinguishes between monitoring costs and who performs them. While executives can monitor, having top-level executives perform routine monitoring typically increases costs and distance from daily operations, reducing cheap, ongoing oversight; this option is not aligned with the idea that lower-cost monitoring arises from closer, cheaper oversight by the workforce itself.

Option 3: 'conducted by employees' — This aligns with the core insight of agency theory that internal, worker-level monitoring (often via self-regulation, peer monitoring, and intrafirm governance mechanisms) tends to be cheaper and more effective than external or top-down monitoring because of lower marginal costs and better alignment with daily tasks. The premise is that employees, being part of the firm, can observe and influence behavior at lower cost.

Option 4: 'performed by managers from other departments' — Involving managers from other departments introduces cross-unit coordination challenges and higher costs, reducing cost-effectiveness and potentially creating power and information asymmetries; this is not supported as the cheaper monitoring mechanism proposed by agency theory.

Overall, the reasoning points toward internal, employee-led monitoring as the mechanism that minimizes costs and enhances effectiveness within the agency framework.

According to agency theory, monitoring would be cheaper and more effective if Blank ______.

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