Chapter 10 - Human Capital Principle/Agent Information...

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Human Capital Principals and Agents Principal- individuals attempting to influence the agent into engaging in a specific behavior o Typically owners/stakeholders Agent- individuals that have their own interests o Typically the employees Principals and agents are self-interested, they want to maximize their own utility P/A interests are not inherently consistent Agents Want to maximize the reward they gain from their employment Decide how much effort to put into a job Effort is a function of utility and opportunity costs o Wages-total compensation received as function of effort- including non-salary benefits o Psychological outcomes- self-esteem, identity, value from equity/reciprocity Principals Attempt to design systems to optimize optimal behavior Must consider agents needs, as they can walk away from the transaction Prinicpals want to maximize profit Profit is a function of: o Effort o Wages o Psychological outcome costs Providing childcare/gym/ reduced work hours etc. Cost could decrease profit, but returned effort from employees may increase profit Employer Power Aiming to maximize job performance o Ability Knowledge, skill, receptiveness o Accurate role perceptions
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Chapter 10 - Human Capital Principle/Agent Information...

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