Effective Threat is Cheaper than Effective Promise - Assignment Example

Answer to Question Effective threat is cheaper than effective promise” To prove the above statement it is necessary to know about the difference of these two terms, “effective threat” and “effective promise”. Both of them are different from each other; effective promise reflects that the task is of more worth than the reward, whereas effective threat is the one in which task is performed since the threat invloved in not performing the task is significant for the performer and therefore he or she forcefully completes that particular task.

For instance, if a person promises that if he will complete the task “A” then he will be rewarded by “C”, and if the task is accomplished, it is then referred to as an effective promise. On the other hand, if a person threatens another person not to do a certain thing otherwise that person will be punsihed, and such person avoids doing such thing then the threat is regarded to be effective. If promise and threat is considered in terms of cost, threat is cheaper than promise because promise includes cost with respect to the rewards given but threat does not inculde any cost (Rooij).

Answer to Question 3 The terminology “Bailout” refers to governmental support in which financial assistance is provided by the government to the organizations facing bankruptcy. The policy of bailing out firms in tough financial conditions results in unfavorable attitude from the business entities. As for instance, business organizations enter into high risk transactions with the belief that they will be rescued by the government upon the occurance of failure or financial crisis. Moreover, keeping in view the bailout option, organizations tend to devise business policies and financial planning which may not be prudent.

In this way, moral hazards are applied to the bailing out of organizations (Johnson). Apart from these hazards, it can be argued that the bailing out of organization suffering from financial difficulties results in a social imbalance, because there are many other rightful and derserving individuals and organizations (particularly not for profit organizations) which shall be financially assisted by the government. On the other hand, the policy of bailing out the business organizations by the governments may result in a culture of carelessness in which organizations may not refer to the rational aspects of decision making and future planning, as for instance, by taking unnecessary risk.

When governments’ perspective is taken into consideration, it is revealed that the governments regard such policies to be beneficial since, according to them, they are safeguarding the economy from losses and helping the society for a better future but the government does not realize the negative aspects of it (Johnson). Works Cited Johnson, Asgeir. "Government Bailouts." 2010. Rooij, Robert and Franke Michael. "Promises and Threats with Conditionals and Disjunctions." January 2010. staff.science.uva. 13 july 2012