Posted: June 4th, 2021

Discussion 8. 9 & 10

 Week 8 Discussion

For this discussion, your focus will be to think through what asymmetric information, moral hazard, and adverse selection have to do with hiring a police officer.

Instructions

Consider the following statement:

  • Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material.

In your discussion post, address the following:

  • Speculate on why police departments do not increase their applicant pool by dropping this requirement and how asymmetric information, moral hazard, and adverse selection are involved? 

 Week 9 Discussion

This week we looked at the principle-agent problem and what went wrong at Wells Fargo. On March 28, 2019, Tim Sloan, the CEO of Wells Fargo, who was supposed to restore the bank’s reputation, stepped down. After a very poor showing by Sloan in testimony about the bank before Congress and with long-standing restrictions by the Federal Reserve still in place, the bank seems unable to overcome the crisis created by a whole collection of deceptive practices which rose to the level of fraud. (For more information, refer to the 2018 article “Fed Won’t Lift Wells’ Growth Cap Until Deficiencies Are Fixed: Powell” from American Banker.)

On October 21, 2019, Charles Scharf officially assumed the role of CEO. Can he succeed in restoring the reputation of Wells Fargo as “the bank that always does the right thing”? This week’s discussion will provide you with an opportunity to put yourself in the shoes of someone advising Mr. Scharf.

Instructions

For this discussion, you are going to advise Mr. Scharf on a key issue.

  • What about the incentive system employed by Wells Fargo resulted in massive creation of fake accounts by the retail operation? And why did it only get worse from there?
    • As you dig into this issue, remember Froeb’s rule from Chapter 1: “Avoid the temptation to think about the problem from the employee’s point of view . . . [and ask] how does the organization give employees enough information to make good decisions and the incentives to do so?” (1).
  • Your post for this discussion should answer the question above and address components of motivation and incentive in order to present Mr. Scharf with reasonable and evidence-supported advice on this issue.
Sources
  1. Luke M. Froeb. 2018. Managerial Economics: A Problem Solving Approach (5th ed.). p. 8. Cengage

 Week 10 Discussion

This week’s discussion will provide you with an opportunity to apply Froeb’s analytic method.

Read the example in the discussion instructions while keeping in mind the following questions:

  • Who made the bad decision?
  • What information did they have? And was it good, bad, or unclear?
  • What was their incentive?

Instructions

Read the following and then respond to the discussion prompt.

  • Intel made large loyalty payments to HP in exchange for HP buying most of their chips from Intel instead of rival AMD. AMD sued Intel under the antitrust laws, and Intel settled the case by paying $1.25 billion to AMD.

Address the following in your discussion post:

  • What incentive conflict was being controlled by these loyalty payments?
  • What advice did Intel ignore when they adopted this practice (consider how the Robinson-Patman Act applies to their practice) and speculate why Intel ignored the advice

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