On the Economic Way of Thinking

BEA683 Economics for Managers

The Case of the Day Care Centre, Haifa, Israel

What are the lessons, if any?

1. Norms

2.Pecuniary Incentive Undersold?

3. Lesson about Economics

• Incentive Mechanisms

• Selection Mechanisms

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A framework for solving problems

1. Who made the poor decision?

2. Did they have the information they needed?

3. Did they have the appropriate incentives?

4. Is there any selection device that will put the right people in the right place?

Incentives Selection

Methodological Individualism

Assumptions

Incentives affect behaviour at the margin

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Total SocialEsteem

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Individuals are self-interestedUndertake an additional unit of an activity when

Expected Marginal benefitto me

Expected Marginal cost to me

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Manager of a Blood Bank