Part 2

Question 1

Agency problems can arise when..

Answer 1

1) the objectives of the principal and agent are different

2) it’s hard for the principal to observe the actions of the agent/information they possess

Question 2

Solutions to agency problems:

Answer 2

1) Bureaucracy
2) Monitoring
3) Performance-based Incentives

Question 3

Problems with the solutions to agency problems:

Answer 3

1. Risk; fixed salary usually preferred to uncertain commission
2. Multiple tasks; performance measure can’t cover all tasks of a job
3. Incentive in teams; free-rider problem

Question 4

3 types of organisational structure:

Answer 4

1) Individual organisation
2) Self-managed teams
3) Hierarchy of authority

Problems that may arise: departmentalization, coordination + control

Question 5

Two Coordination options:

Answer 5

1) Autonomy (independent units, min. information flow outside)
2) Lateral Relations (close coordination & information flows)

Question 6

Two Control options:

Answer 6

1) Centralisation

2) Decentralisation

Question 7

Types of Organisational Structures:

Answer 7

1) Unitary Functional Structures (U-form); centralised strategic decision-making
2) Multidivisional Structure (M-form); departments in divisions that have operational autonomy
3) Matrix Structure; units on multiple dimensions (ex. product + geography)
4) Network Structure; flexible, workers contribute to multiple tasks, groups can recombine

Question 8

Task Interdependence can be..

Answer 8

i) Reciprocal
ii) Sequential
iii) Pooled