Final Exam Review 1
1) The technology of production consisting of the output, the actions taken by the agent
to produce the output, and the events that affect output that are outside the control of
2) The set of feasible contracts
FINAL EXAM REVIEW SHEET 2
Worker Cares about
Principals payoff The payoff of the final recipient of the goods produced. Other peoples
payoff. Opportunity Cost.
Cost of Effort Assumptions
(i) putting in more effort is always more costly than putting in les
FINAL EXAM REVIEW SHEET 3
stay deliberately silent on actions and compensation in some situations or it may be
impossible or too costly to describe actions and compensation in all contingencies
The selection effect of contracts whethe
FINAL EXAM REVIEW SHEET 4
Tournaments are technically allpay auctions. People actually first have to exert effort or
suffer other costs but only the tournament winners will receive compensation.
Beware that this may d
FINAL EXAM REVIEW SHEET 5
Stock options from your employer give you the right to buy a specific number of shares
of your company's stock during a time and at a price that your employer specifies.
Vesting Period: This is the time it takes unt
FINAL EXAM REVIEW SHEET 6
Description of a specific setting with the aim to collect data on performance, inputs and
output combined with qualitative sometimes openended interviews.
The purpose is to test hypotheses with that data: are differences in perfo
MIDTERM 1 REVIEW SHEET
from team work particularly high for men
only, women only, or mixed teams? To
answer this you randomize by departments
and by gender composition and then can
ensures the results are not driven by
see if the results acr
Seniority-Plus Merit Pay-Rewarding based on seniority and merit/performance for
promotions. Usually promoted based on seniority initially, then on merit, to create a long
screening period, and create greater motivation for workers competing for th
Agency Theory-the theory of incentives and principal-agent theory, the economic
perspective on compensation etc.
o Employees are averse to effort and risk, and cant be paid on actual effort.
o Tying compensation to effort expended can improve empl
1. The large law firm: old wealth and new
A) Present institutional form formed in early years of this century
B) PAUL CRAVATH model: organization whose structure transcends the life of its
B.i. It should be tyrannical, one man c
Lack of a relationship with CEO pay and firm performance has been bringing greater
attention on exec compensation. They need to start linking pay to objective measures.
Execs could, in this system, focus on short term profitability instead of focu