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Williamson's Managerial Discretionary Model

  Williamson's Managerial Discretionary Model

            With respect to show a cut down Williamson’s managerial model, we presume that outlay on account of managerial slack M is zero. Provided this, managerial utility operation becomes:

                                    UM       =          f (S, ID)

When management slack M as null, then shown profits parities original profits, then

                                    ID        =          π – π0 – T

Substituting this formulation in managerial utility operation we have:

                                    UM      =          f [S, (π – π0 – T)]

                                    Subject to π, ≥ π0 + T

In the above diagram, we have presented the market association among profits and employees outlay. As the outlay on staff enhances and outcome, productivity enlarges discretionary profits enhances up to point S1 and beyond N, flexible profits starts reducing.

            When employees outlay hikes beyond N, flexible profits become negative. Therefore, employees being less than M and larger than N will not fulfil the minimum profit restraint π0.

            With respect to ascertain symmetry position of a manger we bring the indifference curves mutually with the flexible profits curve in the subsequent diagram. It is to be noted that the manager will optimise its utility at point E, where manager’s indifference curve U3 is tangent to the flexible profit curve.

            It is to be observed from the diagram that in its symmetry position, the manager will be incurring employees’ outlay equal to S* and making flexible profits paritying to S*E.

            It is to be noted further that symmetry will be more than the volume at which flexible profits will be less than the optimum profits while the staff outlay. This is for the reason that managerial utility operation as per to which a maximum mixture of flexible profits and employees’ outlay has to be accomplished for both of them get into managerial operation.

It has to be noted that provided that indifference curves have a negative inclination, the symmetry will be always be on the dropping part of the profit employees outlay curve MN.

This entails preference of managers for more employees’ outlay in Williamson’s model. As compared to a profit optimisation firm, utility optimisation firm of Williamson’s aspect has a higher employee outlay and more management limp. No normal statement can be made about the relative productivity levels for the two firms. It may be noted that under stipulations of perfect rivalry Williamson’s utility optimisation model keeps the outcome of profit optimisation model of the firm.

However, where rivalry is weak that is under situations of oligopoly and monopoly, in Williamson’s model outlay on publicity, managerial luxuries will be higher and as an outcome costs of the firm will mount with an upward push to the price. When under situations of oligopoly and monopoly, demand deteriorates, in Williamson’s utility optimisation model, the outlay on employees, publicity, managerial lavishness which is the sources of high investments will be decreased and results the outlays of the firm and as an outcome will decrease with a downward push to the price.

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