Final answer:
The correct answer is option (a). Conflicts of interest can create agency problems when individual motives conflict with group interests, as seen in collective action problems. Properly managing these conflicts is critical to organizational decision-making, and these conflicts are not beneficial in fostering competition or positive organizational outcomes.
Step-by-step explanation:
Conflicts of interest in an organization often lead to agency problems when individual motivations are contrary to the group's interests, a concept commonly known as collective action problems. These conflicts arise due to differing beliefs, values, opinions, or actions and can manifest in decisions that are harmful to both the group and individuals involved. Resolving collective dilemmas is particularly challenging in scenarios where there is general agreement on an objective but disagreements over specifics, and the manner in which conflicts are managed can significantly impact organizational outcomes.
In the context of the given information, the correct answer to the question of how conflicts of interest cause agency problems is A) This principle explains how conflicts of interest can lead to issues in organizational decision-making. Conflicts of interest do not typically foster healthy competition or positive outcomes within an organization, nor do they have minimal impact on agency problems. Instead, they are problematic because they can lead to decisions that are detrimental to the group as a whole.