Managerial Economics and Organizational Architecture - Solutions Manual
Solutions Manual
to accompany
Managerial Economics and Organizational
Architecture, 7e
Answers to “Analyzing Managerial Decisions” Discussion
Questions
By Jim Brickley, Cliff Smith, and Jerry Zimmerman
Complete Chapter Solutions Manual
are included (Ch 1 to 23)
** Immediate Download
** Swift Response
** All Chapters included
1
,Managerial Economics and Organizational Architecture - Solutions Manual
Table of Contents
Chapter 1: Introduction
Chapter 2: Economists’ View of Behavior
Chapter 3: Exchange and Markets
Chapter 4: Demand
Chapter 5: Production and Cost
Chapter 6: Market Structure
Chapter 7: Pricing with Market Power
Chapter 8: Economics of Strategy: Creating and Capturing Value
Chapter 9: Economics of Strategy: Game Theory
Chapter 10: Incentive Conflicts and Contracts
Chapter 11: Organizational Architecture
Chapter 12: Decision Rights: The Level of Empowerment
Chapter 13: Decision Rights: Bundling Tasks into Jobs and Subunits
Chapter 14: Attracting and Retaining Qualified Employees
Chapter 15: Incentive Compensation
Chapter 16: Individual Performance Evaluation
Chapter 17: Divisional Performance Evaluation
Chapter 18: Corporate Governance
Chapter 19: Vertical Integration and Outsourcing
Chapter 20: Leadership: Motivating Change within Organizations
Chapter 21: Understanding the Business Environment: The Economics of Regulation
Chapter 22: Ethics and Organizational Architecture
Chapter 23: Organizational Architecture and the Process of Management Innovation
2
, Managerial Economics and Organizational Architecture - Solutions Manual
Chapter 1: Introduction
SOCIÉTÉ GÉNÉRALE
Discussion Question Answers:
1. It is true that the Société Générale employee traded on behalf of the bank and that any
of the direct gains and losses from the transactions would go to the bank not the
employee. This does not, however, necessarily imply that the trader was acting
“irrationally” in placing the bets. It is likely that at least part of his bonus was either
directly or indirectly tied to his performance as a trader. Also his performance could
affect his prospects for proportions to higher level positions and compensation at the
bank. While the trader’s compensation may be small from the standpoint of the bank, it
was likely important to him. Clearly the trader’s actions were risky and have legal
implications. Nevertheless, he could have concluded that the prospects of a higher bonus
and promotion outweighed the costs. He apparently had confidence that the European
stock market would increase over time. His knowledge of the control system helped him
to conceal the transactions and reduce the likelihood that his actions would be detected.
Indeed his actions were only discovered after a huge and rather unusual on day drop in
European stock prices of nearly 6%. While his actions could be characterized as risky and
apparently illegal, it is not clear that they were completely “irrational.”
2. The example raises managerial questions about whether it is wise to move an
employee with detailed knowledge of the internal controls into a trading position without
additional monitoring or better controls. While the details of the fraud at Société Générale
were still being investigated, it is plausible that the bank’s organizational architecture
contributed to the problem – the bank’s delegation of decision rights provided the
opportunity to undertake the trades, the bank’s incentive system may have helped to
motivate the improper actions, and the bank’s monitoring staff policies could have
increased the likelihood that they would not be detected.
3. Annual bonuses and the prospects for promotion provided important incentives in
banks and many other organizations. As an executive, you should carefully consider the
incentives that are created by your bank’s compensation and promotion policies. Even
well designed incentive plans can motivate a certain amount of unproductive and even
illegal behavior. Reasonable controls and safeguards should be adopted to limit negative
behavior. Naïve design of incentives and/or poorly designed controls can be a recipe for
disaster. As a manager it is important you consider these issues before the problems arise.
A primary purpose of this book is help managers become better designers of organization
architecture.
3
Solutions Manual
to accompany
Managerial Economics and Organizational
Architecture, 7e
Answers to “Analyzing Managerial Decisions” Discussion
Questions
By Jim Brickley, Cliff Smith, and Jerry Zimmerman
Complete Chapter Solutions Manual
are included (Ch 1 to 23)
** Immediate Download
** Swift Response
** All Chapters included
1
,Managerial Economics and Organizational Architecture - Solutions Manual
Table of Contents
Chapter 1: Introduction
Chapter 2: Economists’ View of Behavior
Chapter 3: Exchange and Markets
Chapter 4: Demand
Chapter 5: Production and Cost
Chapter 6: Market Structure
Chapter 7: Pricing with Market Power
Chapter 8: Economics of Strategy: Creating and Capturing Value
Chapter 9: Economics of Strategy: Game Theory
Chapter 10: Incentive Conflicts and Contracts
Chapter 11: Organizational Architecture
Chapter 12: Decision Rights: The Level of Empowerment
Chapter 13: Decision Rights: Bundling Tasks into Jobs and Subunits
Chapter 14: Attracting and Retaining Qualified Employees
Chapter 15: Incentive Compensation
Chapter 16: Individual Performance Evaluation
Chapter 17: Divisional Performance Evaluation
Chapter 18: Corporate Governance
Chapter 19: Vertical Integration and Outsourcing
Chapter 20: Leadership: Motivating Change within Organizations
Chapter 21: Understanding the Business Environment: The Economics of Regulation
Chapter 22: Ethics and Organizational Architecture
Chapter 23: Organizational Architecture and the Process of Management Innovation
2
, Managerial Economics and Organizational Architecture - Solutions Manual
Chapter 1: Introduction
SOCIÉTÉ GÉNÉRALE
Discussion Question Answers:
1. It is true that the Société Générale employee traded on behalf of the bank and that any
of the direct gains and losses from the transactions would go to the bank not the
employee. This does not, however, necessarily imply that the trader was acting
“irrationally” in placing the bets. It is likely that at least part of his bonus was either
directly or indirectly tied to his performance as a trader. Also his performance could
affect his prospects for proportions to higher level positions and compensation at the
bank. While the trader’s compensation may be small from the standpoint of the bank, it
was likely important to him. Clearly the trader’s actions were risky and have legal
implications. Nevertheless, he could have concluded that the prospects of a higher bonus
and promotion outweighed the costs. He apparently had confidence that the European
stock market would increase over time. His knowledge of the control system helped him
to conceal the transactions and reduce the likelihood that his actions would be detected.
Indeed his actions were only discovered after a huge and rather unusual on day drop in
European stock prices of nearly 6%. While his actions could be characterized as risky and
apparently illegal, it is not clear that they were completely “irrational.”
2. The example raises managerial questions about whether it is wise to move an
employee with detailed knowledge of the internal controls into a trading position without
additional monitoring or better controls. While the details of the fraud at Société Générale
were still being investigated, it is plausible that the bank’s organizational architecture
contributed to the problem – the bank’s delegation of decision rights provided the
opportunity to undertake the trades, the bank’s incentive system may have helped to
motivate the improper actions, and the bank’s monitoring staff policies could have
increased the likelihood that they would not be detected.
3. Annual bonuses and the prospects for promotion provided important incentives in
banks and many other organizations. As an executive, you should carefully consider the
incentives that are created by your bank’s compensation and promotion policies. Even
well designed incentive plans can motivate a certain amount of unproductive and even
illegal behavior. Reasonable controls and safeguards should be adopted to limit negative
behavior. Naïve design of incentives and/or poorly designed controls can be a recipe for
disaster. As a manager it is important you consider these issues before the problems arise.
A primary purpose of this book is help managers become better designers of organization
architecture.
3
