Structure of a firm
,Learning outcomes
Context for this unit
A firm's decision on the to offer workers and the number of workers to
wage
hire is another example of a constrained choice problem (unit 3)
The of interaction (Unit 4)
employer-employee relationship is an example a
strategic
·
↳ How do firms decide the to set ?
on
wage
↳ How does the firm-worker relationship affect and employment in the whole
wages
economy ?
This Unit
1) Describe key differences between contracts in firms and contracts in markets .
2) Explain reservation and economic rent
wages .
3) Discuss principal-agent problem
4) Show how the labour discipline and
wage-setting models are used to find
wages ,
worker effort and employment levels .
, Structure of a firm
Levels of hierarchy ;
decide firm's
Owners the
long-term strategies
(How ,
what , where to produce (
decisions workers
Managers implement assign
these I
Censure assignments are carried out)
Upward green arrows = flows of information
, they dashed be workers know
things that
are
managers
This represents a
problem of do not and know
things that owners do not I
managers
Asymmetric information
Comparing interactions ;
↳ In markets : ↳ In firms :
many firms compete for customers power is concentrated in the hands
decentralized of and
power owners
managers
·
an order' is customer's request 'order' is command from
a an a
managent
·
which a seller can
accept/reject .
which employees must fur fill
Contracts and Relationships
↳ Product contract : ↳ Labour Contract :
Permanently transfer ownership Temporarily transfer authority over a person's
from
of good from seller - buyer . activity employee I
manager
t owner
·
Interactions btw buyers & sellers Employee contract est . a
long-term relationship
are short-lived ,
often not repeated. that lasts years .
,Learning outcomes
Context for this unit
A firm's decision on the to offer workers and the number of workers to
wage
hire is another example of a constrained choice problem (unit 3)
The of interaction (Unit 4)
employer-employee relationship is an example a
strategic
·
↳ How do firms decide the to set ?
on
wage
↳ How does the firm-worker relationship affect and employment in the whole
wages
economy ?
This Unit
1) Describe key differences between contracts in firms and contracts in markets .
2) Explain reservation and economic rent
wages .
3) Discuss principal-agent problem
4) Show how the labour discipline and
wage-setting models are used to find
wages ,
worker effort and employment levels .
, Structure of a firm
Levels of hierarchy ;
decide firm's
Owners the
long-term strategies
(How ,
what , where to produce (
decisions workers
Managers implement assign
these I
Censure assignments are carried out)
Upward green arrows = flows of information
, they dashed be workers know
things that
are
managers
This represents a
problem of do not and know
things that owners do not I
managers
Asymmetric information
Comparing interactions ;
↳ In markets : ↳ In firms :
many firms compete for customers power is concentrated in the hands
decentralized of and
power owners
managers
·
an order' is customer's request 'order' is command from
a an a
managent
·
which a seller can
accept/reject .
which employees must fur fill
Contracts and Relationships
↳ Product contract : ↳ Labour Contract :
Permanently transfer ownership Temporarily transfer authority over a person's
from
of good from seller - buyer . activity employee I
manager
t owner
·
Interactions btw buyers & sellers Employee contract est . a
long-term relationship
are short-lived ,
often not repeated. that lasts years .
