individual_incentives_Presentation

individual_incentives_Presentation - Overview Individual...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Individual Incentives 2 Cornel University Overview 1. Slack a threat to sustainable advantage 2. Agency Relationships 3. Shirking 4. Contracts as a solution to shirking 5. Other solutions 3 Cornel University An agency relationship exists when one party (the principal) hires another party (the agent) to work on his/her behalf. Agency theory is the study of mechanisms that govern transactions between principals and agents. Agency Relationship 4 Cornel University Agency Theory Predicts Shirking Shirking—that agents will act to maximize their own self-interests, at the expense of the principal. Difficult to motivate agent to act on the behalf of the principal Cost to agent: effort of performing the action Cost to principal: observing the action is being properly carried out
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 5 Cornel University Lack of Observability The agent’s actions are not easily observable “Hidden information” or “Information Asymmetry” Agent often knows more than the principal about the job being done, e.g., relationship between effort and observed outcome Conditions That Make “Shirking” Possible 6 Cornel University Monitoring—supervision Costly, may require hiring of independent experts
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 02/20/2009 for the course AEM 4240 taught by Professor Blalock,g. during the Fall '07 term at Cornell University (Engineering School).

Page1 / 5

individual_incentives_Presentation - Overview Individual...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online