BUSI4433 - The debt-overhang problem, Rents and quasi-rents

BUSI4433

SECTION A

1. Write brief answers explaining the nature and significance of four (4) of the following concepts:

a. The debt-overhang problem.

b. Rents and quasi-rents.

c. Divestitures.

d. The winner's curse.

e. The threat of bankruptcy.

f. Double marginalisation.

g. Reputation

SECTION B

1. Property rights theory of the firm.

a. Explain Hart and Moore's property rights theory of the firm. (60%)

b. Department stores sometimes sell goods directly to the final public. However, they also rent ”Concessions” to retailers who sell the final goods to consumers. What does the Hart-

2. Lemons

a. Explain Akerlof's argument that asymmetric information can be a cause of inefficiency in the market for used cars. (60%)

b. In what other markets would you expect to find lemons problems? (20%)

c. Can government intervention reduce lemons problems? (20%)

3. Explain how promotion can be used to motivate employees. Why do some organisations use fast track promotion and/or up or out promotion?

4. Explain how limited liability can lead to excessive risk taking. How does this help us to understand financial crises?

5. Suppose you are the manager of a medium sized business. You wish to give your employees an incentive to work well. How would you choose between using efficiency wages and incentive pay to achieve this?

6. Explain how a partnership (or team) suffers from a potential free-rider problem. What advantages arise from forming a partnership?

7. Explain the concepts of rent-seeking and influence costs. How can organisations be designed to reduce influence costs?