What Is the Principle-Agent Relationship Essay Example for Free

What Is the Principle-Agent Relationship Essay A great majority of social and economic relationships are of the principle agent type. The principle-agent problem is a game-theoretic situation where; there is a player (the principal) and one more other players (the agents). This is the problem of how the principle can motivate the agent to act for the principles benefit rather than follow self interest. â€Å"The problem is how to devise incentives which lead to report truthfully to the principle on the facts they face and the actions they take, and act for the principles benefit. Incentives include rewards such as bonuses or promotion for success, and penalties such as demotion or dismissal for failure to act in the principles interest. † (Black, J. 2003). The actions however, may not always be apparent so it is not usually adequate for the principle to state payment on the actions of the agents. The reasons why we expect the public sector to be inefficient has to do with the incentives and restrictions of the individual and organisational levels. There are at least two important reasons why perfect contingency markets have not developed as stated by Broadway Wildasin (1984). The first reason is that the transaction costs of establishing such markets might be high relative to the number of traders. The other reason is the observable fact of asymmetric information, also known as the principal agent problem. Two particularly significant consequences of this reliance are â€Å"moral hazard† and â€Å"adverse selection†. Daniel W. Bromley (1989), states that the principal must rely on indicators of success rather than success itself (adverse selection), while the agent directs attention toward the satisfaction of proxy measures rather than toward the success of the task itself. (moral hazard). The â€Å"hazard† in moral hazard refers to the fact that the individual has an incentive to direct behaviour toward proxy measures rather than toward the desired goal. This redirection can result in creating incentives for perverse behaviour. The â€Å"adverse† in adverse selection refers to the fact that the establishment of monitoring criteria leads to perverse measurement. Individuals who wish to take out insurance possess information that insurers don’t. The insured persons (the agents) can exploit this informational advantage in dealing with insurers (the principles) in various ways (Broadway Wildasin, 1984). Moral hazard occurs when the insured can, through actions unobservable to the insurer, influence wither the probability of a loss occurring, or the magnitude of the loss. For example, a person can influence the probability of an accident by the degree of preventive action taken. If the quantity of preventive action is not observable to the insured, market failure can result. Alternatively the standard example of how the insured influences the size of the loss is medical insurance. In the event that illness occurs, the insured can overuse medical services. Adverse selection occurs when there are several different types of insured persons, distinguishing from one another by the probabilities of a bad state of nature occurring. Thus, for some persons might be high risk and others low risk, and the insurers cannot tell one from the other. Automobile insurers cannot tell careful from careless drivers except imperfectly through such indicators as sex, and family status. Equilibrium may not exist in the presence of adverse selection and even if it does it may not be efficient. A problem related to adverse selection is the simple lack of information by market participants. The diversification of the Pareto-Optimality of competitive markets assumed that individuals and firms have complete knowledge regarding the availability and attributes of all goods and factors. Such will not always be the case. Consumers may not know the implications of various products for their health or safety, nor will they have full information on the relative merits of various competing consumer items. Firms do not always know the quality of the labour force they are hiring. The provision of information has the attributes of a public good, especially the joint consumption property. Thus, information on product safety and health hazards is often publicly provided. (e. g the Food and Drug Administration). Similarly the education system provides, in addition to its training role, an informational function known as screening. That is by attaching levels of achievement to persons coming out of the education system (e. g. egrees, diplomas, grades), information is being provided to prospective employers regarding the potential productivity of the person. Presumably, the practice of licensing various professions or trades plays a similar screening role, however imperfect it is. The dissemination of information can, for our purposes, be considered as a particular type of public good. Due to the non existence of perfect contingency markets, Pareto optimality does not exist in the real world, and this may influence government behaviour. According to Brown Jackson (1990), inefficiency in the public sector arises when there is an asymmetry of information between those who demand services and those who supply them. This problem is predominantly evident in education and healthcare due to imperfect information. For instance, a patient (the principle) seeks information and advice from her GP or consultant (the agent) concerning her medical condition (i. e. health status). The doctor has specialist technical knowledge and subsequently in providing information to the patient the doctor also advises them on what should be done next. Therefore, because the doctor has the technical skills to make decisions in the patient’s best interests; in most cases they make the decisions for the patients. Had the patient been fully informed and competent enough to assess the technical options, the doctor wouldn’t have to stand in place of the patient as they would have been able to make their own decisions. The public sector consists of professional groups such as doctors, lawyers, teachers, planners etc. Each of these professions holds their own norms and standards that have a hold upon the level and quality of their services. If a lawyer puts professional standards above the interests of the client then this will result in allocative efficiency as they are acting in their own interests as agents rather than those of the principal. Another example of principal and agent is that between voters and elected politicians. â€Å"The rationale for the existence of a representative democracy is that politicians, because of their specialization, are better informed than the general voting public and stand as agents of the voters. † (Brown Jackson, 1990. p. 204). If politicians get the wrong idea about the preferences of the principles then there will be allocative inefficiency once again. In some cases, the suppliers of public services are not exploiting the customers/voters for profit but rather that in serving their own interests â€Å"they may tend to over produce or to produce a quality of service in excess of what tax payers would be prepared to pay if they were better informed. † (Brown Jackson, 1990. p. 204) Due to budget constraints, public firms do not have the financial capabilities to provide powerful incentives unlike private firms. Bonuses are not awarded for good performance nor can individuals be fired for misperfomance. Subsequently, public agencies are systematically less efficient as individuals are less complacent to be efficient or to provide the best services to their customers. Even if they do have any incentive, more often their aim directed at political goals rather than the objectives. Bureaucrats for instance, as explained by Stiglitz (2000) may not receive ample pay checks or considerable dividends from increased efficiency, but they often seem to enjoy the power and prestige associated with being in charge of a larger organization. They attempt to maximize the size of their bureaucracy by reducing efficiency. The only thing that stops them from doing this is competition between bureaucracies. W. A Niskanen, implies that the increasing centralization of government bureaucracies has reduced competition, in doing so bureaucrats can pursue their interests at the expense of efficiency and the public interest. This is an example of the principle-agent problem. â€Å"Here, the problem is, how do the citizens (the â€Å"principles†) get their employees, public servants (the â€Å"agents†), to act in their interests? † (Stiglitz, 2000 p. 202) Revise.

Acid Rain :: Free Essay Writer

Acid Rain is caused by pollution containing sulfur dioxide, nitrogen oxide, and ozone ( SOÃ ½, NOx, and OÃ ½ ) is released into the air. These chemicals are absorbed into clouds and results in Acid Presipitation ( Acid Rain, Acid Snow, Acid Hail, Acid Sleet ). When the chemicals aren’t absorbed into clouds, they can drift for miles and fall to the ground, resulting in Acid Deposition, or dry deposition. When Acid Rain falls into water it is mixed in with the normal water and causes the pH of the entire body to be raised. Measurments on the pH (potential Hydrogen ) scale, rise exponentialy, thus, a lake with a pH of 4 is ten times as acidic as a lake with a pH of 5, and a lake with a pH of 3 is 100 times as acidic, After many rain falls of Acid rain, the pH of a normal lake ( 5.8 ) to 4. Acid Rain has been known to reach the acidicy of pH 2, ( battery acid has a pH if 1 ) this is a drastic change, as normal rain is average pH 5.2. Acid Rain can dissolve limestone and chalk, and corrodes outdoor structures. Statues and monuments that are left unprotected can fall victim to the unpredjudiced destruction of acid rain. Acid Rain reacts to different types of soil and rocks in two ways. 1) Acid rain will dissolve alkaline rocks and soil, or will neutralize the alkalinity. 2) Acid rain will increase the acidicy of already acidic rocks and soil, such as granite, or the soil which results from corroded granite. Acidic chemicals, and alkaline chemicals react to each other by reducing the alkalinity or acidicy of each other. Which ever has the strongest pH level, usually will neutralize or reduce the pH of the other, but after the reaction is complete, both substances have undoubtably changed, their pH moved closer to neutral ( pH 7 ).

Safeway

This paper talks about Safeway a store, now so popular that it has made itself establish as a brand in the market. This paper talks about problems that are plaguing Safeway and how can a solution be reached. It starts off with a summary of the entire paper and then details on the company’s vision, mission, goals etc. It provides a list of problems that Safeway has been facing through the years prioritizes these and then develops a solution plan in a logical step-wise manner. The paper concludes itself with a brief discussion on how the solution can be achieved in an effective manner and provides a brief evaluation of it. Executive Summary. Safeway is a chain of stores, now so popular that it has made itself establish as a brand in the market. Safeway started off as a store back in 1915, under the vision of M. Skagg’s. Then, it was just a store and now we see around one thousand seven hundred and seventy five stores all across United States of America and Canada. The vision at Safeway talks about value and adding value to the chain of operations that the store is involved in. It talks about giving value to customers through value added products and services under the name of Safeway stores and by strategizing success in terms of profits by keeping them narrow while expanding. In 2000, Safeway faced a huge internal labor problem whereby it received threats and complaints from peers and its competitor, Wal-Mart. Another issue was that of loss in sales and of customer base. It also experienced declining profits. (IBSCDC) Safeway, as of its current standing has been facing internal issues revolving around pay conflicts and the chain not keeping its promises to the laborers/ workers. This has resulted into a lot of frustration and feelings of negativity in between the two entities. Strikes arranged by labor union/s have been the looming issue this year, 2009 at Safeway. The basic reasons for this are frustrated workers because of their wages and pension benefits, which they consider low or minimal. (SFGate) Other issues revolve around lawsuits by two pension funds on the management and board of Safeway, blaming them guilty to deceit, greed and managerial inexperience. Due to this situation, many a times the shareholders have gotten very upset at the way things function inside the chain. Another main problem that the company faces is that of conflict of interests, which results in selfish behavior. (RedOrbit) The labor problem directly affects the key stakeholder groups. It has resulted into upsetting the laborers or workers who are the driving force behind the various operations that the chain undertakes, be it the sales stores, warehouses, or the staff at the chain’s office. And when this extends to the whole of America and Canada, it results into negative spill over effects throughout the organization. This affects the shareholders, since history has also proved that two lawsuits also were filed against the management of Safeway due to reasons of conflict of interests, no or minimal transparency etc. The different solutions that this paper has proposed comprise of a sound transparent system in overall operations, fair measurement of performance through technology usage and SAPs (HRMReport), improving upon the recruitment guidelines by involving pre-agreed upon contracts between the company and the worker being recruited, and lastly, employing the element of bureaucracy by the ‘stick’ technique applied to the upper management by the Board. The last option surrounds replacement of all those managers who have shown a history of conflict of interests. Resource Center) The best solution out of all these is a combination of achieving transparency through correcting any occurrence of conflict of interests with pre-agreed setting of labor contracts. The solution can be implemented by communicating it to the shareholders, workers and upper management. This should be done in a clear manner. A ‘no-patience’ approach should be communicated boasting an environment fr ee of greed, selfishness and self-interest- envisioning, communicating and implementing a conflict of interests free environment. This can hence help in adopting a measurement of performance for workers plan under which the transparency guidelines will be communicated effectively. Position Safeway started off as a store back in 1915, under the vision of M. Skagg’s. Then, it was just a store and now we see around one thousand seven hundred and seventy five stores all across United States of America and Canada. Today, Safeway is not just a chain of stores (grocery stores) rather it is a brand. It has also launched several private brands under its umbrella all across North America. There are three thousand products approximately available under the brand names of Lucerne, Mrs. Wright’s, Safeway and Safeway Select Label that markets more than a thousand premium brands. Through the years, the chain of stores has done its share of corporate social responsibility. It does this by donating to schools, for breast and prostate cancer research, contributing towards the displaced people resulting out of natural calamities like the Tsunami and also helps disabled people. This initiative, which is a proper program at the company basically, has helped it make and retain community partnerships. Also, Safeway has contributed towards the restoration and preservation efforts of the environment, by extending help in the areas of renewable energy and solid waste management. (Safeway Website) Vision and Mission of Safeway The vision at Safeway is the same as it was before that was built by Skagg’s. It talks about value and adding value to the chain of operations that the store is involved in. It talks about giving value to customers through value added products and services under the name of Safeway stores and by strategizing success in terms of profits by keeping them narrow while expanding. Its mission statement is that of ‘expanding for the better’, which revolves around continuous improvement when the management jargon is applied. These also constitute the broader, long-term goals for the company. Safeway believes in ‘Ingredients for Life’, since it encompasses the concept of ‘wholesomeness’ in whatever services and products it is providing to the customer. This, henceforth also forms its tagline. (Safeway Web Site). Stakeholders of Safeway These include groups and people from the different segments of the countries. First and foremost it includes the shareholders who have been investing in the company and the Board of Directors of Upper Management. Other key stakeholders include customers who contribute towards the revenues by visiting stores and making purchases. Its suppliers include all the companies that through stocking fee reserve their spaces in shelves in all Safeway stores for retail. The Corporate Social Responsibility Steering Group or CSR Steering Group is yet another group that has stake in the chain of stores- Safeway. Others include, Media Companies, Journalists, Laborers, and last but not least its employees. Problems: Contextual Analysis Safeway’s ride to success and its expansion efforts have not been problem free. It has faced many internal as well as external problems that have rendered its free will operations difficult to perform under such circumstances. In 2000, Safeway faced a huge internal labor problem whereby it received threats and complaints from peers and its competitor, Wal-Mart. Another issue was that of loss in sales and of customer base. It also experienced declining profits. (IBSCDC) Safeway, as of its current standing has been facing internal issues revolving around pay conflicts and the chain not keeping its promises to the laborers/ workers. This has resulted into a lot of frustration and feelings of negativity in between the two entities. Strikes arranged by labor union/s have been the looming issue this year, 2009 at Safeway. The basic reasons for this are frustrated workers because of their wages and pension benefits, which they consider low or minimal. (SFGate) Other issues revolve around lawsuits by two pension funds on the management and board of Safeway, blaming them guilty to deceit, greed and managerial inexperience. Due to this situation, many a times the shareholders have gotten very upset at the way things function inside the chain. Another main problem that the company faces is that of conflict of interests, which results in selfish behavior. (RedOrbit) Sense One of the major problems at the company revolves around its labor workers due to labor unions and their frustrations. The chain of grocery stores- Safeway has been trying to take control over this issue, through resolution efforts in terms of labor agreements etc. , but nothing too productive and fruitful has been done. Therefore, the issue still stands and even though is not raging with the same force as it was before it is definitely the most problematic area for the corporation as of now. SFGate) The fringe benefits including health care and pension related alongside the wage issue present in the labor staff, has resulted into a deep frustration. This has resulted into a negative feeling between the company and the workers. The labor union demands increments in their wages and wants a yearlong hold to adjusting the pension program (which constitutes pension benefits for the workers). Many companies have agreed to these terms to some extent by increasing the retirement age but the wage issue remains frozen. (McGhee, T. These however are the symptoms of a larger cause, a greater problem, this being mismanagement on the part of the upper management arising due to a conflict of interests and as mentioned above greed and hypocrisy. The labor problem directly affects the key stakeholder groups. It has resulted into upsetting the laborers or workers who are the driving force behind the various operations that the chain undertakes, be it the sales stores, warehouses, or the staff at the chain’s office. And when this extends to the whole of America and Canada, it results into negative spill over effects throughout the organizat ion. This affects the shareholders, since history has also proved that two lawsuits also were filed against the management of Safeway due to reasons of conflict of interests, no or minimal transparency etc. Uncover The problem surrounding labor related issues and up rise of labor union movements against the management is the biggest problem at Safeway because if a company’s employee/s workers are not happy, the manual force behind its operations is not strong therefore this results into low profitability, bad reputation and further conflict of interests. The different solutions that this paper has proposed comprise of a sound transparent system in overall operations, fair measurement of performance through technology usage and SAPs (HRMReport), improving upon the recruitment guidelines by involving pre-agreed upon contracts between the company and the worker being recruited, and lastly, employing the element of bureaucracy by the ‘stick’ technique applied to the upper management by the Board. The last option surrounds replacement of all those managers who have shown a history of conflict of interests. Resource Center) Solve The problem is so massive that it requires a proper plan of action in the form of a labor plan and a formalized labor budgeting report. This calls for transparency as well as a clear set of goals for the laborers or workers at the company. Employing transparency within the company is the key solution here and others should replace replacing managers or upper management people, who have showed a selfis h attitude, in the corporate market. This is the only end solution in end. But, since this is not a feasible option since laying off and replacing a company’s upper management just like that is not an easy task, what needs to be established is a formalized, controlled system of labor handling. Under this each laborer or worker before his recruitment will know about his wages, fringe benefits and pension benefits. If the agreement proves to be a compromise between the company as well as the worker, then it should be agreed upon to start off induction and the recruitment processes after that. There should also be a sound â€Å"management of employees framework†, that helps in gaining accountability and transparency with fairness to the entire process of performance evaluation. The best solution out of all these is a combination of achieving transparency through correcting any occurrence of conflict of interests with pre-agreed setting of labor contracts. Build Strategic decisions involve making of sound decisions which includes goal identification, problem finding, generation of solutions as possible options and then evaluation these to select the best possible one. Schwenk, C. (1984) says that cognitive psychology hence needs to be adopted when making decisions in the corporate world. (Schwenk, C. , 113) A risky project comprising of uncertainty according to theorists comprises of setting a performance measure that results into goal alignment successfully. The ‘standard’ here is that of the project passing through the potential ‘Pareto Improvement’. (Graham, D. , 715) In line with these theorists’ views, the best solution as proposed above out of all the ones mentioned is a combination of achieving transparency through correcting any occurrence of conflict of interests with pre-agreed setting of labor contracts. The positive side of this tells a story of no or minimal confusion in agreements of labor contracts, less occurrence of ill reputation, and no or minimal frustration on the part of the workers and shareholders as the two key stakeholders here in this case. The dark side to the cost benefit analysis in line with what Schewenk, C. 1984) has talked about revolves around fears of bureaucracy and the upper management becoming agitated and frustrated due to less empowerment and control in their hands. Achieve The solution can be implemented by communicating it to the shareholders, workers and upper management. This should be done in a clear manner. A ‘no-patience’ approach should be communicated boasting an environment free o f greed, selfishness and self-interest- envisioning, communicating and implementing a conflict of interests free environment. This can hence help in adopting a measurement of performance for workers plan under which the transparency guidelines will be communicated effectively. An evaluation phase can be developed henceforth, by having an internal audit constituting of representatives of the Board Members, so as to hold checks after each quarter. This shall help in consistency supervision and prevention of conflict between Safeway and its workers.

Parenting Styles And Culture Of The Western Societies

Though two differing cultures may use the same style of child rearing methods, their results may differ. The results are dependent on other factors such as the â€Å"psychosocial environmental structure, socioeconomic factors, and population factors† (Raj Raval, 2013, p. 168, para. 2). Parenting is influenced by culture in both Western and non-Western societies (Mothander Wang, 2014). While one parenting style may be appropriate for the culture of the Western society, it may not be an effective parenting style within the Asian culture. â€Å"Parenting styles and behaviors are means through which parents socialize their children to function competently in their community, and an authoritarian parenting style may serve different functions in collectivist and individualist cultures† compared to that of the United States (Raj Raval, 2013, p. 170, para. 1). I will be comparing parental socialization approaches in two major non-Western countries, India and China, and the methods used by each culture to secure a successful future for their children. Child rearing practices have been categorized into four styles: authoritarian, authoritative, permissive, and uninvolved (Schnell, n.d.). The authoritarian style shows emphasis on the parental figure being the final say in all matters with no questions asked; â€Å"obedience above all else† (Schnell, n.d., p. 1, para. 2). The authoritative style involves â€Å"high behavioral expectations,† but it is not above all else (Schnell, n.d., p. 1,Show MoreRelatedCulture Is An Important Determinant Of Our Personality1594 Words   |  7 Pagesbeliefs, and norms belong to a particular culture. Therefore it would be incorrect to say that culture has no affect on us. In fact, culture, influences our most basic human behavior like the manner in which we learn, think, and behave. 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