ECON 103 Lecture Notes - Lecture 17: Product Differentiation, Market Power, Outsourcing
17 Mar 2017
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Document Summary
A command system uses a managerial hierarchy: commands pass downward through the hierarchy and information (feedback) passes upward, these systems are relatively rigid and can have many layers of specialized management. A incentive system: a method of organizing production that uses a market-like mechanism to induce workers to perform in ways that maximize profit. Li(cid:374)ks (cid:373)a(cid:374)age(cid:396)s o(cid:396) wo(cid:396)ke(cid:396)s pa(cid:455) to the fi(cid:396)(cid:373)"s pe(cid:396)fo(cid:396)(cid:373)a(cid:374)(cid:272)e a(cid:374)d helps align managers and workers interest with those of the owners (aka the principals) Long term contracts: ties managers or workers long term rewards to the lt performance of the firm, this encourages agents to work in the best lt interest of the owners (aka the principals) Income taxes paid by stockholders receiving after-tax profit (dividends: pros and cons. Large-scale and low-cost capital that is readily available: professional management, complex management structure is slow and expensive, profits are taxed twice.
