BUS 421 Chapter Notes - Chapter 12: Moral Hazard, Adverse Selection, Capital Market

• School: Simon Fraser University
• Department: Business Administration
• Course: BUS 421
• Professor: Irene Gordon

Document Summary

Ta(cid:374)dard setti(cid:374)g is the regulatio(cid:374) of fir(cid:373)"s i(cid:374)for(cid:373)atio(cid:374) produ(cid:272)tio(cid:374) de(cid:272)isio(cid:374)s (cid:271)(cid:455) a regulator: mediates conflicting interests between investors and managers, firms with monopoly regular rates and price caps. Reasons: externality, the actions of one party (i. e. underproduction) affect outside parties, to protect individuals who are at an information disadvantage due to information asymmetry. Intend to improve the operation of capital and managerial labor markets by enhancing public confidence that these markets work well. Includes financial statement information, earnings forecasts, details of new financing, and audit. Additional information add a barometer to the thermometer: the introduction of new information systems to report on matters not currently included. The amount that equates the marginal social benefits of information production to the marginal social costs of information production. Creates the largest possi(cid:271)le (cid:862)pie(cid:863) of i(cid:374)for(cid:373)atio(cid:374) (cid:271)e(cid:374)efits for so(cid:272)iet(cid:455) Any additional production would cost more than the benefits granted.