Name : Wiji Astuti

Nim : 7101415195

JOURNAL REVIEW

Introduction The Problem :

Agency problem the separation of security ownership and
control, typical of large corporations and can be an efficient form
of economic organization.

The research question/issue :

1. How the irrelevance of the concept of ownership of the
firm ?
2. How about management and risk bearing ?
3. How the viability of separation of security ownership and
control of the firm ?

The Method:
Descriptive Qualitative

The approach to solving/advancing it:

Experimental, practice based, analytic, etc.

The Outcomes:
Contributions to knowledge:

We know about the difference management and risk bearing,

and understand the modern corporation, it is better to separate
the manager, the agents of who is common all the contract of
the joint inputs and who has the right to renegotiate any input’s
contract independently and from the risk bearer described who
hold the residual status, who the right to sell his central
contractual residual status.

State of the Art Review Journal of political economy, 1980 vol.88 no. 2
This research is support by National Science Foundation. Roger
 Komendi has contributed much, teh comments of A. Alchian, S.
Bhatacharaya, G. Beeker, F. Black, M.Blume, M. Bradley, D.Breaden,
N. Gonedes, B. Horwits, G. Jarell, E. H. Kim , J.Long, H. Manne, W.
Meacling, M.H. Miller, M.Scholar, C. Smith, G.J Stigler, R. Wates, T.
Whisler, and J. Zimmermen gratfully knowledge. Presentations at the
finance, labor economic, and industrial organization workshops of the
university of Chicago and the workshop of the managerial economics
research center of university Rochoster have been helpfully. The paper
is largely an outgrowth of discussion with michel C. Janssen. The
modern literature on problem dates back at least to Berle and Means.

Methodology The research used analytic study case about marketable human capital
and stochastic processes for marginal products.

Foundation work The presumption that a corporation has owners in any meaningful
sense. The entrepreneur is also laid to rest, at least for the purpose of
the large modern corporation. The two functions usually attributed to
the entrepreneur – management and risk bearing- are treated as
naturally separate factors within the set of contract called a firm. The
firm is disciplined by competition from other firms, which forces the
evolution of devices for efficiently monitoring the performances of the
entire team and of its individual member. Individual participant in the
firm, and particular its managers, face both the discipline and
opportunities provided by the markets for their service, both within
and outside the firm.

New Studies The examine somewhat more specifically conditions under whichthe
discipline imposed by managerial labor markets can resolve potential
incentive problem associated with the separation of security
ownership and control.
To focus on triying tosolve the problem,first examine the situation
where the manager is also the firm’s sole security holder, so that there
is cleary no incentive problem.
Three general conditions suffice to make wage revaluation imposed
by managerial labor market a form of full ex post settling up which
resolves the managerial incentive .
The first condition is that a manager talents and his taste for
consumption on the job are not known with certainty. The second
 assumption is that managerial labor markets appropriately use current
and past information to revise future wage and understand any
enforcement power inherent in the wage revision process.
The final condition for full control of managerial behavior through
wage changes is that the weight of the wage revision process is
sufficient to resolve any potential problem with managerial incentive.
For example :
Example 1. Marketable Human Capital
Suppose a manager’s human capital, his stream of future wages, is
marketable assets. Suppose the manager perceives that, because of the
consequent revaluations of future wages, the current value of his
human capital changes by at the least amount of an unbiased
assessment of wealth changes experienced by other factors, primarily
the security holders, because of his current deviations from contract.
Example 2. Stochastic Processes for Marginal Products
The specific assumption about stochastic evolution of a manager’s
measured marginal product and about how the managerial labor
market uses information from the process to adjust manager’s future
wage – in a manner which amount to precise, full ex post settling up
for the result of past performance.

Results The important to recognize that using the capital market in the manner
the manager to “average out” the random noise in his measured
marginal product. The allocation of the current marginal product to
future expected marginal product in fact occurs because the current
marginal product has information about future expected marginal
product. The manager can achieve the same result by contracting to be
paid the measured value of his marginal product and then using capital
market to smooth his marginal product. This power of the capital
market to reduce the terror in full contractual ex post settling up is lost
in the 1-period models that dominate the contracting literature.

Conclusions The important general point is that in any scenario where the weight
of the wage revision process is at equivalent to full ex post settling up,
managerial incentive problem – the problem usually atributed to the
separation of security ownership and control of the firm – are solved.
No claim is made that the wage revision process always result in a full
 ex post settling up on the part of manager. There certainly situations
where is the weight of anticipated future wage changes is insufficient
to counterbalancethe gain to be had from ex post shirking, or perhaps
outright theft, in excess of what was agreed ex ante in a manager’s
contract.
The extent to which the wage revision process impose ex post settling
up in any particular situation is of course an empirical issue. But it is
probably safe to say that the general phenomenon is at least one of
ingradients in the survival of the modern large corporation,
characterized by diffuse security ownership and the separation of
security ownership and control, as a viable form of economic
organization.

References/Bibliography Alchian, Armen A. "Corporate Management and Property Right." In

Economic Policy and the Regulation of Corporate Securities, edited
by Henry G. Manne. Washington: American Enterprise Inst. Public
Policy Res., 1969.
Etc.