Business Administration 2257 Study Guide - Quiz Guide: Indifference Curve, Budget Constraint

• School: Western University
• Department: Business Administration
• Course: Business Administration 2257
• Professor: Alexander Miller

Document Summary

Analysis of sources of agency costs of equity & who bears them. X: vector of quantities of all factors and activities within firm from which manager derives non- pecuniary benefits. C(x): total dollar cost of providing any given amount of these items. P(x): total dollar value to firm of the productive benefits of x. B(x): p(x)-c(x) = net dollar benefit to firm of x ignoring any effects of x on equilibrium wage of manager. F=b(x*)-b(x) measures dollar cost to firm (net of productive benefits) of providing the increment x- X* of factors which generate utility to managers. ^x: vector of factors and activities which yield manager maximum utility for any given level of cost to firm (f) f=b(x*)-b(^x) F: current market value of stream of manager"s expenditures on non-pecuniary benefits. Theorem: investor will only pay (1-alpha) times the value he expects the firm to have given the induced change in behaviour of owner-manager will pay less.