According to agency theory, how is the firm viewed?

The correct perspective in agency theory is viewing the firm as a "Nexus of contracts" among self-interested individuals. This concept emphasizes that a firm is not just a singular, cohesive unit but rather a complex web of relationships and agreements between different stakeholders—such as shareholders, managers, employees, suppliers, and customers—each with their own interests and objectives.

In this framework, the interactions and contracts between these parties help to align the differing interests and mitigate conflicts, particularly between owners and managers, known as the principal-agent problem. Agency theory suggests that the firm operates effectively when the incentives of these various stakeholders are aligned with one another, creating a system of governance through contracts that facilitate cooperation and reduce the potential for opportunistic behavior. This approach provides a realistic perspective on how firms operate in practice, recognizing the multiple interests and complexities involved in business operations.

The other choices do not capture the essence of agency theory accurately. While viewing the firm as a profit-maximizing entity or as an entrepreneurial endeavor may broadly describe certain aspects of a business's objectives or its innovative nature, they do not encompass the intricate relationships defined by contracts and self-interest among the various participants involved in the firm. Similarly, describing it merely as a task force organization overlooks the fundamental