ECON 308 Study Guide - Midterm Guide: Decision Management, Rent-Seeking, Comparative Advantage
Document Summary
Power of the purse is when the more money you control the more power you have. For example: when the ceo elected, he needs to assemble the team, he will pick his closest friend to become. Monitoring: measure performance of executed decision and allocate rewards. Decision management refers to initiation and implementation and is executed at a lower level of the firm. Decision control refers to ratification and monitoring an is executed at a higher level of the firm. Whenever there is principal-agent relationship, separating decision management and decision control limits conflict of interest. For example: baring bank of london, hire a german finance to go to singapore and start trading with the stock market of japan, which is dropping. The guy keeps trading thinking that what goes down will come up. Hq keeps sending him money believing that he keeps making profits. By the time hq found out what happened, the lost wiped out all of the bank capital.
