QUESTION 1

(a) What do you understand by the agency problem?

(b) What is meant by moral hazard and adverse selection?

(c) How do the terms in (b) above complicate the agency problem?

(d) What are the different broad types of contracts that exist?

(e) Make recommendations for the type of contract in each of the following situations-

(i) Research contract between an advanced weapons designer / manufacturer and the army for the feasibility study of deploying a robot- soldier in various combat situations

(ii) Sales contract between a mobile operator and a call centre for the sales of mobile phone packages

(iii) Market survey for a car company trying to gauge customer satisfaction for its first-time buyers - work will involve calling fixed number of customers and having them answer predetermined questions from a questionnaire

QUESTION 2

(a) Explain the term offshoring

(b) Why are western countries afraid of offshoring?

(c) How do western countries benefit from offshoring?

(d) Gartner predicted that the trend for 2008 was going to be nearshoring. What is meant by nearshoring?

(e) What benefits does nearshoring provide as opposed to offshoring?

(f) How do you think the Mauritian BPO Industry will be affected by the trend of nearshoring predicted by Gartner and what should it do to protect itself?