Economic Organizations, Institutions and Markets

PROBLEM SET 3

1. Millennials

1. What are the expectations of “millennials”? Do their expectations match the

reality of the job market in the globalized economy? How could expectations be
managed on the short- and long-term?

Milennials tend to have high expectations about themselves, so they need

constant positive reinforcement. Not at all, because in a very competitive
globalized market there aren’t enough rewards and achievements for everyone.
Great achievements are demanded by everyone and often require enormous
effort.

2. Are millennials prepared to compete in the local or the global market? In

particular, what is their comparative advantage with respect to their
competitors?

Well, from my point of view they are, despite their high expectations and high self-
esteem. Millennials, thanks to the way they were raised, respond very well to
tangible incentives (like a salary rise or a new position), but, moreover, they have
significant strengths in teamwork, technological skills, social networking and
multitasking.

3. How do millennials interact with the performance control and reward systems
used by firms? Should firms expect a different behavior between millennials and
other employees when evaluating performance and providing feedback? Use
your knowledge from Business Economics 2 on subjective and objective
performance evaluation and the provision of feedback to employees. Does any
feature of UPF’s organization of teaching and evaluation fit this analysis?

For millennials it is important a good reward system, a system in which they have
incentives to strive (esforzarse) and good opportunities, since they were raised
with these reward systems. For this reason, they tend to respond very good to this
type of systems.
On the other hand, millennials tend to prefer weekly or daily evaluations of
themselves, because they usually raised with const positive reinforcements, and
they search more affirmation in their workplace.
Provide feedback to a millennial could be a difficult task Because often their
parents protected them when they fail so as not to damage their self-esteem, so
too hard feedback could discourage them instead of motivating them.

4. Explore how firms and millennials could adapt to their situation.

 Companies that want to compete for top talent of this millennial generation must
adapt to them. Employers have to offer good opportunities to progress in the
company and give them opportunities to talk and be listened by the managers.

2. Farsighted contracting

In view of what we have been studying on Evolutionary Psychology, do you think it is

always useful a contractual anticipation or “farsighted contracting” strategy
proposed by Nobel laureate Oliver Williamson for keeping opportunism under
control? This farsighted contracting is directed to build, prior to contracting, explicit
safeguarding mechanisms (e.g., sanctions in contexts of underperformance) that will
reduce the risk that our counterparties will behave opportunistically ex-post. When is
farsighted contracting more useful and when may be detrimental? (Notice,
marginally, that this is similar to incentive “mechanism designs” which is typical to
much of the economics of contracts.)

Well, farsighted contracting can reduce opportunism ex-post on certain occasions, but
if work circumstances are strongly changing, the cost of constantly creating and
changing this contract may be greater than that of avoided opportunism.
On the other hand, in those situations where work circumstance are quite fixed, this
farsighted contracts may be worth it.

II. QUESTIONS ON INCENTIVE MANAGEMENT

1. What is the difference between reciprocity-based cooperation and the cooperation

based on repeated transactions?

Cooperation based on repetitive actions has its source in the rational ability of people to
calculate the option that greater output will give them considering that in the long term
others will know your way of acting. On the other hand, cooperation based on reciprocity
has its source in the emotional characteristics of people that causes the behavior and
output of others to alter our behavior.

2. What is the relationship between reciprocity-based voluntary cooperation and wage

rigidity? Is there a symmetric relationship between such preferences for cooperation and
increases / decreases in wages?

3. How would you apply the experimental results obtained by Fehr and Gächter (2000) and
Carpenter (2001) on public goods, discussed in class and referred by Fehr and Falk (2002:
706-707), to manage quality control in a firm or service activity, as, for instance, the ones of a
hotel or a taxi company?

In the case of the taxi company, you could implement a system of qualifications and reviews for
both, taxi drivers and customers, so that when hiring a service both taxi driver and customer
could see the profile of the other person, and if the service by the taxi driver or the customer’s
behavior was bad, they could punish him with a bad review.

4. Ferhr and Falk (2002) explain that multiple equilibria can arise in the relationship between
individual compliance and the compliance of others in the social group. (a) What are the
consequences of the existence of multiple equilibria? (b) Provide two real life examples
similar to the initial and final equilibrium in the Kindergarten experiment.

5. Illustrate with an example each one of the four “rules” mentioned in the Cowen reading

I. Offer monetary rewards when performance at a task is highly responsive to extra effort.

Example: Give a commissions per sale in the case of commercial agents.

II. Offer monetary rewards when intrinsic motivation is weak.

Example: The owner of a supermarket could incentivize cashiers so that cashiers who do not
arrive late even once during the month have an extra bonus.

III. Pay monetary rewards when receiving money for a task produces social approval.

Example: As the accounting teacher did, offer an economic reward to the best project in the
class.

IV. High rewards tend to make individuals "choke."

Example: The new super signing of Futbol Club Barcelona that cost 100 million dollars which
then ends up scoring two goals throughout all the season.