1. A firm is a focal point for a set of contracts. Explain the problems that (1) agency relationships, (2) asymmetric information, and (3) adverse selection can introduce to building a successful contract between two people.
2. Decentralized decision making is very controversial in a corporate environment. Central office managers feel like they are losing control of managers in specific plants or regional offices. What are some of the issues that must be reviewed before making the final decision on where to place final decision-making power?
3. Historically, many businesses have preferred specialized task assignment for employees over broad task assignments. Why has this been the case?
4. What roles do human capital and compensating differentials play in shaping the wage that a firm will pay a new employee?
5. What are the factors that favor high incentive pay for an employee? Explain which of the five factors is the most important.
6. The dean of a large university issues the following policy for faculty pay-raises in the smaller satellite campuses: faculty pay increases will be possible only if enrollment increases above last year's targets. Evaluate the impact of this policy on the overall system.