I love migraines, I've not been able to look at a screen for a few days and that's knocked out my great Wire re-watch in the middle of the superb, and depressing fourth season.
Oh and I couldn't get to questions.
So without further ado, last minute roundups. Just one thing....
The marking season is really short and really intense this year. I'm going to have around 200 papers to do in not very much time, so while I'll do my best to cover things, it's not always going to be possible, so please understand if I can't. That'll also make it difficult to see people, so I say sorry now if I have been unable to. I know you are all concerned students, (and I'm a concerned teacher for that matter), but I'm a finite resource so I hope you understand that there will be limitations on what I can do.
On with the show.
Quoth a cherub
For the 2007 question A7. "Raising capital by selling shares effectively
splits ownership and management functions in a company. Give two
advantages and two disadvantages of this form of company structure?"
is it correct to assume one of the advantages would be reduction in
transaction costs and one disadvantage would be the principal agent
problem(ie managers pursuing diffrent goals from owners)? What other kinds
of advantages and disadvantages could be an acceptable answer?
Both true. Whist you're pumping me for answers, how about the loss of control that dilution of equity leads to, or that debt is great in a rising market but when your debts become expensive to service then the deal becomes less good. (Not thinking about the referee buying plastic mancs here)
Cherub two declaimeth thusly
"Mergers. Why do they tend to underperform the market?"
Underperform IN the market or actually THE market?
Sorry this might be really stupid, but it's the revision time.
Actually, that is very definitely not a question of stupid. What does it mean? Well, we're loose with words. Sloppy lazy loose. A lot of the time.
So here's how I'd put it. Take two companies. Merge them. The evidence is that the merged entity will not do as well as pre-supposed. I'd take that as the interpretation
Another Cherub standeth atop the pulpit to exclaimeth
quick question about the exam. In the 2007 and 2008 paper on cross price
elasticity, there is a question which asks to comment on the degree of its
substitutability. Can you clarify what kind of answer you are expecting
for this? For instance, in the 2007 paper with the XPe = +2.4, if we say
that the two products have a strong relationship and is highly
substitutable, is that enough for full 2 marks?
Yep.
Basically does the 1st question about governments involve all the monetary
policies (oligopoly monopoly contro) and the 4th one all the non-monetary
(climate conservation) policies?
No because 1) they're not monetary policies (i.e. they aren't principally about the money supply) and secondly the second may not necessarily involve government. (e.g. credit unions and mutuals also existed to remedy a market failure, but did so by private association)
However in general, it is usually governments that remedy externalities though as they have the monopoly on making laws and levying taxes.
Keep em coming.
Is the tragedy of the commons a demonstration of when something is not
owned, there are no property rights, then people will over use? Therefore
the solution is for government intervention to limit (place taxes) and
monitor individual use of a common resource? Over fishing is another
example, therefore government has placed quotas in order to limit the
amount of fishing that takes place.
Would I discuss in an essay the consequences of having things/places free
to use, and therefore why government intervention may be neccessary?
Roughly. The tragedy of the commons (or more properly the tragedy of the mismanaged commons) is that if there are no property rights over a common good, the incentive will be to over-exploit the good. I say mismanaged, because as the original coiners of the TOTC phrase have since come to point out, people like the !Kung of the kalahari or the Shuar of the amazon have actually been better at managing the commons then the marketisers who came later.
Over fishing (the cod stocks problem, or even the bluefin problem) is a great example. BTW did you know about the Mediterranean infestation of jellyfish? It's a problem caused because of overfishing their natural predators, the Albacore Tuna.
After your revision lecture I was slightly unsure about example you
mentioned about Sony buying film and recording studios,which then leads
onto their inability to compete with Apple with MP3s. Is this example
applied to Merges or switching costs?
Also with respect to Government getting involved with the way businesses
run: Could reference to the CAP, where Governments guaranteeing a minimum
price of all produce produced by farmers within the EU, leading to the
government just selling their surplus for a loss to other countries, i.e
Dumping. = resulting in a negative effect to those on the receiving end of
the dumping. Is this a valid point or am I getting to over excited? Could
this possibly be used in any other analysis, possibly of trade?
On 1). Sony's example was applied to mergers. However, I think if you are perceptive and have eyes to hear you will have noted the application of switching costs to many issues of technology adoption.
On 2) Yes, but only if you postulate that the government is acting as an agent. That's not a ridiuclous suggestion.
1. Are the use of the terms 'principal' and 'agent' just another way to describe two parties in a transaction? The agent being the seller and the principal being the one who requires the desired exchange? If this is the case then the problems of asymmetric information (adverse selection, moral hazard) are part of/linked with the principal-agent problem. Basically, I am quite confused with the principal-agent problem and how it links with everything.
2. In a question about the role of the government, would a discussion on monetary/fiscal policy, public goods, merit/demerit goods, taxes/subsidies be relevant? But how does this relate to governments getting more involved in running businesses?
1) No. The principal is the contracting party, but they employ a third party, an agent to do business for them. Yes, this is an asymmetric information problem too. Yes moral hazard works (I employ an agent, he gets lazy on my contract and doesn't wrk for me. Or I vote for a politician and once he has my vote he goes around pretending to be Gordon Brown and setting up a stasi state,)
2) I'd use the sentence "aside from the standard role of the government in......., there has been renewed interest in Governments actually running businesses. Why is that (market failure?) What are the advantages (Governments don't tend to go bust? stability although if you look at the nationalisation denationalisation of British Steel farrago you'd be a bit sceptical, strategic security , no country in the world has entirely privatised its defence industry, sovereign investment, exploitation of economies of scale (NHS?) and not wishing a merit good to be provided by the market.
Right. Break time. See you later.
P
