Lecture Managerial economics (8e): Chapter 14 - Samuelson, Marks

Chapter 14 - Asymmetric information and organizational design. Chapter 14 considers the implications of asymmetric information - the case in which an agent on one side of a transaction has superior information to his counterpart on the other side. Asymmetric information presents a barrier to efficient transactions whether in markets or within firms. In turn, a firm’s organizational design aims to minimize the costs posed by asymmetric information.

Chapter Fourteen

Asymmetric Information and  Organizational Design

I was to learn later in life that we tend 

to meet any new situation by  reorganizing, and what a wonderful  method it can be for creating the  illusion of progress while producing 

confusion, inefficiency, and 

demoralization.

~Petronius Arbiter, 210 B.C.

Incentive Pay at DuPont’s Fiber Division

DuPont’s fiber division began an experiment in incentive  pay of unprecedented scope for a company of its size

1.3

Asymmetric information

Adverse Selection

A Benefit’s Program

A “Lemons” Market

Signaling

Asymmetric information

Principals, Agents, and Moral Hazard

A Building Contract

Health Insurance and Medical Expenditures

Insuring Against Financial Failures

The Financial Meltdown

Organizational Design

The Nature of the Firm

The Boundaries of the Firm

Assigning Decision­Making Responsibilities

Decentralization

Airbus’s Dysfunctional Organization

Coordination Through Teams

Coordination Via Transfer Prices

DHL Worldwide Express

Organizational Design

Monitoring and Rewarding Performance

Motivating Workers

Integration or Franchising?

Evaluating Individual Performance

Monitoring and Rewarding Performance 

Information Technology and  Organizational  Structure

Boundaries of the Firm

Internal Information Sharing

Organizational Design

Separation of Ownership and Control in the Modern  Corporation

Limiting the Power of Top Management

disclosure requirements external enforcement of managerial duties the market for corporate control

Separation of Ownership and Control in the Modern  Corporation (cont.)

Shareholder empowerment Corporate governance reforms

Organizational Design

Separation of Ownership and Control in the Modern  Corporation (cont.)

Financial Incentives

Business Behavior—Executive Compensation and 

Incentives

Enron, Worldcom, and Tyco

Incentive Pay at DuPont’s Fiber  Division Revisited

A PRINCIPLE­AGENT MODEL