Economic Theories and its Related Concepts - Example

Name Institutional affiliation Tutor Date Report Plan Throughout the learning of personal economics, unpretentious report plan can be developed to lessen and evaluate the concepts captured by the Lecturer. It was not only an easy staff, but also it required a lot of conscience and determination in order to complete it. We learned in various parts which will be highlighted in a short while. These parts had concepts within them in which we found to be crucial in our academic learning. The first part was in economic theories and its related concepts, issues dealing with human resource management, and marginal products of labour was covered extensively. The second focus was on incentivising of work in which we learn about firms and how they employ their workers, and determine the amount of labour force to be employed by each worker. Performance appraisal was another topic covered. In this section, the major issue was how performance can impact on workers wage in firms. In multiple tasks and perverse incentives, we found that workers can do several things at a time as assigned to them. In addition to this, multiple types of workers was also fostered in the discussion. In this case, the lower productivity workers are known to produce less output than the higher ones. Intrinsic motivation is additional point considered and hence, the urge of having many people in a firm specialized in many areas like in nursing and teaching. The last part was in empirical literature given by Gneezy and Rusticini who demonstrated the impact of monetary and penalty in picking children from day cares. This impact was found to increase the picking up rate. Mechanisms found to be sufficient in discussing and designing contracts were purpose standards and information on incentives. ECONOMICS REPORT Part 1: Economic theories and concepts In the first part of this sequence, we learn about introduction to personal economics. In this case, we have concepts which fall under the introduction part of economics. The following are the key issues learned: Personal economics being an applied concept, use of microeconomic concepts in solving issues dealing with human resource management, we also learn on how workers should be reimbursed by paying them according to the value of the marginal product of labour they impose in work (Edward 2007). This theory requires that workers to be paid in line with the demand and supply decisions. We learn on the importance of complementarity and heterogeneity, consider the microeconomic models and incentives by solving problems either graphically or algebraically. We also look at the limitations of standard models to incorporate some of the behavioural adjustments into the same. At the same time, we shall also examine empirical evidence especially on specific theories to include and evaluate the quality of evidence. The dimensions of human resource include; Compensation in related performance, the urge to hire and retain most productive employees, and also the system of retaining and removing poor performers. According to Bloom and Van Reenen (2007), they suggested that most of these issues of human resource are hard to quantify in terms of score firms on the respective attributes. Substantiation given so far indicates that, management attributes of the HRM matter a lot especially when it comes to firm performance. The better practices of management best in firms which; produce for exports, firms facing less labour in market regulation, facing of market in product competition, those that are not owned by the family, and they have high skilled workers. The two contrasting views of management are in design perspective, which is sometimes referred to as contingent management where different firms use different compensation contract schemes. This happens when firms face different schemes like in technology, levels of skills and the environment. Firms also make optimal choices in complementary policies when given these constraints. The other item is the use of managerial technology, which is a universally better or worse blend of HRM practices. Firms also would like to upsurge their prevalence of incentive pays over time such as the ones occurred in early 1980s according to the US panel study of income dynamics (PSID). It is also essential in addition, to evaluate benefits that accrue to the HRM policies especially in estimating the effect of quality of data, what might be happening in time, control of given characteristics that may in the long run affect productivity, and the only remedy to this is use of a controlled random trial technique. Part 2: Incentivising work In this section, we learn about firms when they employ workers. The main thing here is to determine the amount of labour force needed to be inserted by any worker and then the preferred wage rate the company should pay. A simple model of maximising utility of the consumer, and maximising the profit of the firm will be factored into the system. Later on the risks of uncertainty, aversion, and multiple output measures will be introduced. In the workers decision model, the major target of workers is that of not exerting effort and hence the firm will design a strategy in which to calculate the wage so that the worker will be encouraged to exert effort. Workers will exert effort only if, the marginal returns from it is more than the marginal cost of the effort (Paul 2013). With risk aversion problem, the worker is fretful with preference of a given outcome to gambling with a certain expected outcome. Workers necessity is to achieve at least their reservation utility to satisfy their constraints. Firms will have to set certain optimal quantities so as to ensure good output is obtained in order to maximise their profits. The optimal contract with the risk neutral worker is the franchise model which requires that firms sell to workers and then allow them to keep revenue for themselves. The risk-averse individual, the firms need to pay a higher rate of base salary to compensate them and in this case we have the fundamental trade of in between the insurance and the incentives. The optimal incentives for workers will be higher when; the net revenue is higher, the employee risk aversion is lower, marginal cost of effort is lower, and the output is measurable and is accurate. Part 3: Performance evaluation In the last part of the discussion, still we cannot be able to measure or quote exactly the wage for the workers. In this illustration, the more sources of information, the lower the variance of the wage for the workers. In performance evaluation, we consider what should be chosen in performance measures and how they may impact on the worker’s wage and the impact of the workers to the firm, but in real terms, these measures are not available. To solve this problem, we look at the informativeness principle, quantities to consider, measures of risky such as the controllable risks and uncontrollable ones, which the worker, cannot influence. We find that these performance measures should shield workers form uncontrollable risks. We learn why performance which is subjective and why it may not apply to work, why supervisors overrate workers and the possible suggested reasons are as follows; guilt, reduced lower future performance due to the budget, poor reflection in management issues, and the time when dealing with complaints (Michael et. al 2005). Forced distribution, which require a certain percentage of workers at given points and hence this means that, when one worker has been marked as highly rated, then no other one can be marked higher than the other. In summary, broad performances are highly subject to uncontrollable risks the subjective performance evaluation is very costly, and controllable performances are those that are narrow and more subject to being manipulated. Part 4: Multiple tasks and perverse incentives In this task, workers can do several things at a time. They can assign into two different tasks call them y1 and y2 at different times. This worker will have to split his hours of working, H into these two tasks to complete them according to the workers behaviour. In the firm’s decision, a worker must exert some amount of effort in each of the two tasks assigned. If the worker is working in all the tasks and the firm cannot measure his output, it will provide some incentives to enable the worker’s effort to be exerted in all the tasks. If the output from one task is un-measurable, unobservable, the firm cannot incentivise it. This therefore, means that if the output from one of the tasks cannot be measured, then the firm cannot have an output based scheme for incentives. Other relevant examples of perverse incentives are the timing of incentives, performance manipulation of measures, and the ratchet effect where there is timing of the setting the piece rate. Part 5: Multiple types of workers In this case, lower productivity workers are known to produce less than the high productivity workers. High productivity workers will provide much more output as in the full information case, whereas the low productivity ones produce less. Imitation will be made less attractive for the high productivity workers than the low productive ones. Low productivity workers will achieve a utility of zero, whilst the high productivity ones will achieve a much more utility according to the information rent thus revealing that they are high productivity workers. In this model summary, if productivity is not observed, the high productivity workers have incentives of imitating low productivity ones. Firm need to offer a menu for contracts when the type cannot be observed, and a firm is best of fit if and only if it can observe worker type, and offer different wages to different output levels as induced by the workers (Bengt Holmstrom & Paul Milgrom 1991). Part 6: Intrinsic motivation In this case, the utmost aim is to introduce some ad hoc models of behaviour to some specified standards. The concept of intrinsic motivation specifies that, we should undertake tasks which cannot be derived from any financial incentive. The presence of intrinsic motivation model may lead to lower levels of reliance on which the incentives pay than to the standard economic approaches. In this regard, we have the wage rate as a selection. Here we assume that in a firm, there are varying nature of people specialized in various areas such as ministry, teaching profession, nursing. This model is best explained by the handbook originally forms the nurses market by Heyes in the year two thousand and five (Anthony Heyes 2005). We also look at the issue of incentives and reputation. Suppose that a worker is employed in a firm and the owner wants the worker to take an extra activity. What happens is that the worker might perform his additional task as much as caring about his reputation. The amount paid to the worker will be counterproductive in such a case. Empirical evidence Some evidence given may reward the crowd on intrinsic motivation. The first two papers by Gneezy and Rusticini have illustrated that; imposition of monetary policy penalty of picking children from the day-care increased the likelihood of their parents picking them up late. The second paper on the IQ questions, students answered them right with high piece rate and fewer questions with moderate piece rates. In the children scenario, the ones who paid for the proportions of their collections paid less than the ones who never paid at all. Mechanisms discussed so far is an example of wage contracts providing information on incentives, dual purpose standards and incentives that are very sufficient in discussing the behaviour and the design contracts of the empirical evidence. Works cited Edward P. Lazear (2007). Personnel Economics: The Economist's View of Human Re- sources', Journal of Economic Perspectives 21(4), pp.91-114. Retrieved from http://www.jstor.org/stable/30033753 Nicholas Bloom and John Van Reenen (2010), `Why do management practices differ across firms and countries?', Journal of Economic Perspectives 24(1), pp. 203-224. Retrieved from> http://www.jstor.org/stable/25703489 Edward Lazear and Paul Oyer (2013), `Personnel Economics' in Handbook of Organiza- tional Economics, available as NBER Working Paper 13480. Retrieved from>http://www.nber.org/papers/w13480 Michael J. Gibbs, Kenneth A. Merchant, Wim A. Van Der Stede and Mark E. Vargus (2005), `The benefits of evaluating performance subjectively', Performance Improvement 44 pp 26-32. Retrieved from> http://onlinelibrary.wiley.com/doi/10.1002/pfi.4140440508/abstract Bengt Holmstrom and Paul Milgrom (1991), `Multitask principal-agent analyses: incentive contracts, asset ownership and job design', Journal of Law, Economics and Organi- zation, 7 pp.24-52. Retrieved from> http://www.jstor.org/stable/764957 Anthony Heyes (2005), `The economics of vocation or `why is a badly paid nurse a good nurse'?', Journal of Health Economics 24(3) pp. 561-569. Retrieved from> http://www.sciencedirect.com/science/article/pii/S0167629604001043 Read More