ECON 2720 Lecture Notes - Lecture 5: Marginal Product, Deferred Compensation, Financial Instrument
27 Jan 2017
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Xenophon and making incentive for slaves to work. Objective of owner is to make most profit. Need to fulfill obligations of an athenian citizen. Wants time off so need to make enough money to hire more managers. Pay labour according to value of marginal product. One can be sure even in a bad year, that the manager has run the state in order to maximize the profitability of the estate. Maximized interest of the shareholders is based on the profit made by company. Buying a share in the future stream of profits of a corporation. Align portfolio with your interest with the performance of how the company is being managed. Stream of profit -> corporations outlive the owners (assumed to live forever) Value of shares is what the stock markets think about the long-run prospect of the corporation. Incentive contract that focuses on the long-run profitability. By managers in the form of stock options.
