Week 6 key definitions Flashcards
Division of labour
The specialization of producers to carry out different tasks in the production process.
Seperation of ownership and control
The attribute of some firms by which managers are a separate group from the owners
Firm specific asset
Something that a person owns or can do that has more value in the individual’s current firm than in their next best alternative.
Incomplete contract
A contract that does not specify, in an enforceable way, every aspect of the exchange that affects the interests of parties to the exchange (or of others).
Employment rent
The economic rent a worker receives when the net value of her job exceeds the net value of her next best alternative (that is, being unemployed).
Reservation wage
What an employee would get in alternative employment, or from an unemployment benefit or other support, were he or she not employed in his or her current job.
Worker’s best response function (to wage)
The optimal amount of work that a worker chooses to perform for each wage that the employer may offer.
Involuntary unemployment
The state of being out of work, but preferring to have a job at the wages and working conditions that otherwise identical employed workers have.
Asymmetric information
Information that is relevant to the parties in an economic interaction, but is known by some but not by others
Verifiable information
Information that can be used to enforce a contract.
Principal agent relationship
This relationship exists when one party (the principal) would like another party (the agent) to act in some way, or have some attribute that is in the interest of the principal, and that cannot be enforced or guaranteed in a binding contract.
