CHAPTER 1 The Nature and

Seope of Managerial Fconorries 11

continued
traditional man creation of value is
The computer has also dismantled increasingly hased on knowledge
decimated the ranks of middle and commnunications rather than as in the
agerial hierarchies and past on nat
of today's revolu- ural resources and
management (the third component physical labor For example, mary
were the transmis auto repaurs will soon be made not by a mechanic with
tion). In the past, middle managers
information between top management and a wrench but by a technician who fixes an engine knock
sion ines for
workers. Today, intormation can in most instances be by reprogramming a computer chip. and goods and
to workers
transmitted from top management directly services will incrcasingly be marketed and distributed
of a computer key and electronically
and vice versa by a simple tap
without any nced of middle management. Surviving Today's four-pronged revolution affects drastically
middle managers are today assuming more important
roles and are increasingly being used to sheter senior
not
only how traditional products and services are
produced and distributed but also the entire organ1
managers from the day-to-day operations of the firm zation of production, consunption, and management
o that the latter can concentrate their energies on the in ways that are not yet fully evident or understood. Can

strategic management of the firm. you think of this revolution taking place in, say, Indian
revolution is the banking, retail, or manufacturing industries
The fourth component of today's
of the information economy, where the
rapid spread
5, 1998),
Cau Welcome to the Revolution," Fortune (December 13, 1993), pp. 66-78, "Management's New Paradign," Forhes (October
"A Revolution
152-176. Q N. Huy. "In
Praise of Middle Managers," Harvard Business Review (September 2001). pp. 72-79: Management
on

pp. 63-64, "More

Callin the Making." The New York
Times (March 12, 2002). p. 5, "In Defence IMF Survey
of Globalization," (March 1, 2004).
Joumal B6; Nick Bloom and John Van Reenen, "The Econom-
Emnlovers Plan to Hire
Middle Managers, The Wall Street (Febuary 1, 2005), p.
No. 4 (2008); "Middle Managers," The Economist (August 27, 2011). p 56, "The Boss,"
c s of Management
and Productivity, NBER Reporter,
26-34, and "Building Middle-Manager Morale," The Wall Street Journal (August 7, 2013). p. BI
New York (June 24, 2013). pp.

1-4 HOMO ECONOMICUS

Economists talk of individual preferences and despite apparent and huge differences across
but is it
individuals, treat all of them as the same consumer. It may ease an economist's job
not unfair as well as incorrect? Economists, actually, address this problem in a very simple
the way people think and act vis-à-vis economic
way. That is, despite apparent differences,
transactions is very similar-to each other. Therefore, economists invoke a Homo economicus,
as our representative consume, which
i.e., the economic beingThis economic being serves
possesses certain characteristics that are universal and the core of each consumer throughout
the worldThese basic characteristics are non-satiation, clarity of preferences, selfish motive
and possession of information.t is important to note that all these assumptions are qualified
assumptions and not absolutëîn nature. A superset of all the characteristics constitutes what
economists love to call 'rationality'.
So how do we interpret each of these? Non-satiation implies that a consumer would
less, and less quantity of bad For
always prefer more quantity of a good over a over more.
example, more of food is preferTed over less but less of pollution is preferred over more.
Clarity of preferences is often also called the transitivity of preferences. It implies that if
good A is preferred to good B and good B is preferred to good C, then good A must be more
preferred to good C. It is essential to underline that the consumer behaves in a linear fashion
and the choices made are not random. As compared to the previous two, it is more difficult
to accept the selfish motive. However, the economic selfish motive is different from calling
people selfish. In Economics, it implies that people work in self-interest rather than with a
wish to harm themselves. Finally, possession of information implies that individual consumers