Q. Describe Managerial and behavioural theories?
It was only in 1960s that neo-classical theory of firm was disputed by alternatives like behavioural and managerial theories. Managerial theories of the firm, as developed by William Baumol (1959 and 1962), Robin Marris (1964) and Oliver E. Williamson (1966) suggest that managers would seek to maximise their own utility and consider the implications of this for firm behaviour in contrast to the profit-maximising case. Baumol suggested that managers' interests are best served by maximising sales after achieving a minimum level of profit that satisfies shareholders. More recently this has developed into 'principal-agent' analysis (for example Spence and Zeckhauser and Ross (1973) on problems of contracting with asymmetric information) that models a widely applicable case where a principal (a shareholder or firm for example) cannot infer how an agent (a manager or supplier, say) is behaving. This may arise either since the agent has greater expertise or knowledge than principal or since principal can't directly observe the agent's actions; it is asymmetric information that transforms into a problem of moral hazard. This means that to an extent, managers can pursue their own interests. Traditional managerial models characteristicallypresume that managers, in place of maximising profit, maximise a simple objective utility function (this can include perks, salary, security, prestige,power) subject toan arbitrarily given profit constraint (profit satisfying).