Chapter Outline

Headline: Incentives at Saturn: Will a New Kind of Car Company Continue to Roll?

1. Introduction
2. Methods of Procuring Inputs
   1. Purchase the Inputs Using Spot Exchange
   2. Acquire Inputs under a Contract
   3. Produce the Inputs Internally
3. Transaction Costs
   1. Types of Specialized Investments
      1. Site Specificity
      2. Physical-Asset Specificity
      3. Dedicated Assets
      4. Human Capital
   2. Implications of Specialized Investments
      1. Costly Bargaining
      2. Underinvestment
      3. Opportunism and the "Hold-Up Problem"
4. Optimal Input Procurement
   1. Spot Exchange
   2. Contracts
   3. Vertical Integration
   4. The Economic Trade-Off
5. Managerial Compensation and the Principal-Agent Problem
6. Forces that Discipline Managers
   1. Incentive Contracts
   2. External Incentives
      1. Reputation
      2. Takeovers
7. The Manager-Worker Principal-Agent Problem
   1. A.Solutions to the Manager-Worker Principal-Agent Problem
      1. Profit Sharing
      2. Revenue Sharing
      3. Piece Rates
      4. Time Clocks and Spot Checks
8. Answering the Headline
9. Summary
10. Key Terms and Concepts
11. Conceptual and Computational Questions
12. Problems and Applications
13. Selected Readings
14. Appendix: An Indifference Curve Approach to Managerial Incentives