Lecture 9 Flashcards
1
Q
Asymmetric information
A
Owners and managers don’t always know what their subordinates know or do
2
Q
Separation of ownership and control
A
Managers and owners are different people with differing interests
3
Q
Incomplete contract
A
- Buying labour is different from buying consumption goods because the contract between buyers and seller is incomplete
- An incomplete contract doesn’t specify in an enforceable wage every aspect of the exchange that affects the interests or parties to the exchange (or of others)
4
Q
Employment rent
A
- The economic rent a worker receives when the net value of her job exceeds the net value of being unemployed
- = Hourly wage - Disutility of effort - Value of the next best option
5
Q
Disutility of effort
A
- How easy it is to do your job
- Expected duration of unemployment
- Social preferences e.g. reciprocity, altruism
- Social stigma from being unemployed
6
Q
Value of the next best option
A
- Size and duration of unemployment benefits
- Benefits attached to the job e.g. healthcare
- Net income from other alternatives e.g. self employment
7
Q
Reservation wage
A
What an employee would get if not employed in his or her current job
