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Unformatted text preview: ECOS3003 Tutorial 4 1 Hierarchies, incentives and firm structure ECOS3003 Tutorial 4 1. Describe ways a boss can credibly make a commitment not to meddle too much in the decision making of a worker. Why would a boss ever want to make such a commitment? 2. A principal can either legally make a decision herself (P-formal authority) or can decide to assign the formal right to make a decision to her subordinate (delegation). In each case the party that has the formal right to decide can make a decision on a new project. If that party is uninformed they will defer the decision to the other party who will decide if they are informed. The principals effort level of finding a new project is denoted by E; e denotes the subordinates effort level. E and e represent the probability that both the principal and the agent discover a new project. The following table provides the effort levels of both parties under P-formal authority and delegation....
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This note was uploaded on 08/24/2010 for the course ECOS 3003 taught by Professor Andrewwait during the One '10 term at University of Sydney.
- One '10