AYB321 Lecture Notes - Indirect Costs, Free Rider Problem, Agency Cost
Document Summary
Economic choice: limited resources, unlimited wants, assigning priorities to wants chose most preferred option. Opportunity cost: cost of using a resource for a given purpose is its value in its best alternative use. Marginal costs and benefits are the incremental costs and benefits associated with making a decision. Managers responses to problems are likely to depend on their understanding of people"s motives and their forecast of people"s reactions their responses thus depend on their underlying model of behaviour. Most managerial actions attempt to change the behaviour of individuals. Management need to understand what motivates their employees before choosing a policy to address the situation. Assumption: individuals act to maximise their utility. Implication: align interests of employee with the firm provide bonuses to hard workers and make decisions which increase firm value. Managers can impact behaviour by appropriately designing the opportunities facing individuals.
