Test graduate-level understanding of the principal–agent framework and incentive contract design: core concepts of information asymmetry, moral hazard and adverse selection; risk-sharing and effort-versus-performance trade-offs; incentive compatibility and participation constraints; common contract forms (linear, nonlinear, options, bonuses) and performance metrics; deriving intuition from the baseline model with a risk‑averse agent and a risk‑neutral principal; evaluating monitoring, governance, and real-world trade-offs when selecting incentive schemes for firms. Questions will require explanation, model-based reasoning, and applied evaluation of contract choices.