【正文】 2020 Pearson Education, Inc. Chapter 17 90 External Costs MC S = MCI P1 q1 P1 Q1 MSC MSCI Firm output Price Industry output Price MEC MECI q* P* Q* D Firm will produce q1 at P1. There is MEC of produc ion from the waste released. The MSC is true cost of production. The profit maximizing firm produces t q1 whil the efficient output level s q*. 169。2020 Pearson Education, Inc. Chapter 17 88 Negative Externalities and Inefficiency ?Assume the firm has a fixed proportions production function and cannot alter its input binations ?The only way to reduce waste is to reduce output ?Price of steel and quantity of steel initially produced given by the intersection of supply and demand 169。2020 Pearson Education, Inc. Chapter 17 86 Externalities ?Positive ?Action by one party benefits another party ? Homeowner plants a beautiful garden where all the neighbors benefit from it ? Homeowner did not take their benefits into account when deciding to plant 169。2020 Pearson Education, Inc. Chapter 17 84 Externalities ?Externalities arise between producers, between consumers, or between producers and consumers ?Externalities are the effects of production and consumption activities not directly reflected in the market ?They can be negative or positive 169。2020 Pearson Education, Inc. Chapter 17 81 Efficiency Wages at Ford Motor Company ?Results ?Productivity increased 51% ?Absenteeism was halved ?Profitability rose from $30 million in 1914 to $60 million in 1916 Chapter 18 Externalities and Public Goods 169。2020 Pearson Education, Inc. Chapter 17 79 Without shirking, the market wage is w*, and fullemployment exists at L* Demand for Labor w* L* Unemployment in a Shirking Model Quantity of Labor Wage SL NoShirking Constraint The noshirking constraint gives the wage necessary to keep workers from shirking. we Le At the equilibrium wage, We the firm hires Le workers creating unemployment of L* Le. 169。2020 Pearson Education, Inc. Chapter 17 77 Efficiency Wage Theory ?If workers are paid market clearing wage w*, they have incentive to shirk ?If they get caught and fired, they can immediately get a job elsewhere for same wage ?Firms have to pay a higher wage to make loss higher from shirking ?Wage at which no shirking occurs is the efficiency wage 169。2020 Pearson Education, Inc. Chapter 17 75 Efficiency Wage Theory ?The efficiency wage theory can explain the presence of unemployment and wage discrimination ?In developing countries, productivity depends on the wage rate for nutritional reasons 169。2020 Pearson Education, Inc. Chapter 17 73 Incentive Design in an Integrated Firm Output (units per year) 2,000 4,000 6,000 10,000 0 10,000 20,000 30,000 40,000 Bonus ($ per year) 8,000 If Qf = 30,000, bonus is $4,000, the maximum amount possible. Qf = 30,000 Qf = 10,000 If Qf = 10,000, bonus is $5,000. Qf = 20,000 If Qf = Q* = 20,000, bonus is $6,000. 169。2020 Pearson Education, Inc. Chapter 17 72 Managerial Incentives in an Integrated Firm ?Assume true production limit is Q* = 20,000 ?Line for 20,000 is continued for outputs beyond 20,000 to illustrate the bonus scheme but dashed to signify the infeasibility of such production ?Bonus is maximized when firm produces at its limit of 20,000。2020 Pearson Education, Inc. Chapter 17 70 Managerial Incentives in an Integrated Firm ?If manager estimates capacity to be 18,000 rather than 20,000, and if the plant only produces 16,000, her bonus increases from $8000 to $9000 ?Don’t get accurate information about capacity and don’t insure efficiency ?Bonus still tied to accuracy of forecast 169。2020 Pearson Education, Inc. Chapter 17 68 Managerial Incentives in an Integrated Firm ? Possible Incentive Plans 1. Give plant managers bonuses based on either total output or operating profit ? Would encourage managers to maximize output ? Would penalize managers whose plants have higher costs and lower capacity ? No incentive to obtain and reveal accurate cost and capacity information 169。2020 Pearson Education, Inc. Chapter 17 66 Managerial Incentives in an Integrated Firm ?In integrated firms, division managers have better (asymmetric) information about production than central management ?Two Issues ?How can central management elicit accurate information? ?How can central management achieve efficient divisional production? 169。 Profit = $18,000 ? Net wage = $2,000 ?w = R $18,000 ? Net wage = $2,000 ? High effort 169。 R = $15,000 ?R = $10,000 or $20,000, w = 0 ?R = $40,000。2020 Pearson Education, Inc. Chapter 17 64 Incentives in the PrincipalAgent Framework ?Choosing a wage: ?w = 0。2020 Pearson Education, Inc. Chapter 17 62 Incentives in the PrincipalAgent Framework ?Designing a reward system to align the principal’s and agent’s goalsan example ?Repairperson can work with either high or low effort ?Revenues depend on effort relative to the other events (poor or good luck) ?Owners cannot determine a high or low effort when revenue = $20,000 169。2020 Pearson Education, Inc. Chapter 17 60 Incentives in the PrincipalAgent Framework ?Small manufacturer uses labor and machinery to produce watches ?Goal is to maximize profits ?High monitoring costs keep owners from measuring the effort of the repairperson directly 169。2020 Pearson Education, Inc. Chapter 17 58 Incentives in the PrincipalAgent Framework ?Designing a reward system to align the principal’s and agent’s goalsan example ?Watch manufacturer ?Uses labor and machinery ?Owners’ goal is to maximize profit ?Machine repairperson can influence reliability of machines and profits 169。2020 Pearson Education, Inc. Chapter 17 56 The Manager