Write a short essay on the problem of influence costs within the firm and how best to handle this problem under different circumstances.
COMMENT: These issues are discussed in the last section of Chapter 12 titled “Influence Costs”. The problem here is that employees have incentives to influence managerial decisions in a way that may not be in the best interest of the firm. This may create a variety of costs and lead to reduced profits for the firm. Note also that the last three discussion boxes in the text are all based on this problem.