When Is It Best for a Board of Directors to Use

question 77

Essay

When is it best for a board of directors to use a "carrot" as a governance mechanism, and when is it better to use a "stick"?

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Definitions:

Consumption

The use of goods and services by households or individuals, which is a primary component of economic activity.

Income

The cash flow generated out of work or investments, typically on a steady basis.

Utility Function

A mathematical representation of a consumer's preference ranking over bundles of goods, showing the level of satisfaction or utility derived.

Commodity

A basic good used in commerce that is interchangeable with other goods of the same type; commodities are often used as inputs in the production of other goods or services.