Agent: persuaded, decides Principal: making offer
Coase T=tells us when no transaction costs, what prevent individuals from reaching mutually benefitial agreements, institutions, the laws, and org structures that regulare individual behavior wont affect value-producing decisions. Method used to select the option that has the higher t value that is the most eff decision. When 0 t costs=every efficient. When there are obstacles; what will affect.
Conservative offer: V-Ch no puede dar neg. P< v-ch/v-cl, sise cumple: conservative sino ag.
1)Indiv involved 2)relevant ec decisions 3)relevant set of rules
Aggressive offer: only accepted when cost low.
Expected utility if conservative offer: V-Ch.
Negotiation to be efficient: P(V-Cl)-(V-Ch)k>V-Ch 0<k<1 to be possible conservative offer.
Up(Cl, F)=pc(V-Cl)-(1-pc)F F disutility if project not completed.
F>o igual pc(V-Cl)-(V-Ch)/1-pc
Up or stay promotion: senior vs, junior, if valuable for senior, he stays.Work hard if Wsenior-Wju>C, boss will promote him if Vlearndoc-Vlearnju>Wd-Wj
most used in firms, A trusts P, A incentive to effort and gain to be senior
Up or out promotion: P promotes A to senior job or fired. Boss promotes him if Vdh-Vd>Wd employee work hard if Wd>Wd+c
How large or small the weight of variable compensation in an optimal forma inc system should be: b*=f2-lg/f2+g2
Centralization: authority is centralized, profitable ideas implemented. Centralized: Mr needs boss approval to execute the projects.
Delegation: authority is the team is decentralized, not seek other authorization (powerful means to foster initiative and innovation in org. Decentralized: Mr has the right freedom to execute the projects. Mr es un manager)
ac=P· X < ad=X Mr will spend more effort under a decent. Structure because all his projects will be executed and he gets more pride and reputation. In a central structure, only the profitable project will be executed, so doesnt feel as motivated.
Decent is more efficient when (1+p)·X+p·B>L, when the employee fees great satisf for executing his projects. When subordinate effort is really important for the projects to succeed and when the possible losses are small.
Delegated: JOhnson: Weber recalls how the decentralized Johnson carefully reduced the authority given to its divisional directors after a series of imprudent drugs releases that led to conflicts with the food and drug admin and litigation with competing firms.
Financial trouble: circumstances disfavor delegation of authority because Mr doesnt know his future and if there would be a new boss.
TCOSTS=situations that make it more difficult to the principal and agent to negotiate. IT can be the incompletion of info (principal doesnt know high/low costs) or that there is short time to negotiate (nego should go fast to lose the fewer customers possible).