Follow a link for the explanation and its worked context. Related terms share a link when the useful lesson is the distinction between them.
Choices, costs, and customers
- Opportunity cost, sunk cost, and marginal reasoning
- Gains from exchange and division of the gain
- Market demand, supply, and equilibrium
- Fixed, variable, and avoidable costs
- Contribution and capacity opportunity cost
- Accounting versus economic profit
- Price elasticity of demand
- Self-selection through service tiers
Strategy and authority
- Best response and dominant strategy
- Nash equilibrium and the prisoners’ dilemma
- Outside option and disagreement point
- Credible commitment
- Principal, agent, agency costs, monitoring, bonding, and residual loss
- Decision rights, evaluation, and rewards
- Initiation, ratification, implementation, and monitoring
- Rules versus discretion
- Escalation, policy exceptions, and amendment
Evaluation and employment
- Objective, performance measure, and evaluation rule
- Outcome noise versus recording error
- Thresholds and target ratchets
- Absolute, relative, and subjective evaluation
- Pay level versus pay sensitivity
- Risk-bearing and a risk premium
- Screening, signaling, and self-selection
- General and firm-specific human capital
- Promotion tournaments
Organizing the business
- Functional departments and divisions
- Shared rewards and free-riding
- Residual claim and incentives to monitor
- Influence costs
- Responsibility centers
- Transfer prices and capacity
- Activity-adjusted budgets
- Transaction costs and firm boundaries
- Specific investment and hold-up
- Ownership and residual control rights
- Residual earnings and franchising
- Organizational fit and complementarities
- Governance and managerial agency