Assignment
Read the case studies and answer the questions
Case 1: ANALYZING MANAGERIAL DECISIONS: Nobel Prize-Winner F A. Hayek on the "Miracle" of the Price System
It is worth contemplating for a moment a very simple and commonplace instance of the action of the price system to see what precisely it accomplishes. Assume that somewhere in the world a new opportunity for the use of some raw material, say, tin, has arisen, or that one of the sources of supply of tin has been eliminated. It does not matter for our purpose-and it is significant that it does not matter which of these two causes has made tin more scarce. All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the entire economic system. This influences not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all things made of tin, and their substitutes, and so on. All this takes place without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes. The whole acts as one market, not because any of its members surveys the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity-or rather that local prices are connected in a manner determined by the cost of transport, etc.-brings about the solution which (if conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.
Some people (e.g., Hayek) argue that decentralization of economic decisions in the economy leads to an efficient resource allocation. What differences exist within the firm that makes the link between decentralization and efficiency less clear?
Source: F, Hayek (1945), "The Use of Knowledge in Society," American Economic Review 35, 519-530.
Case 2: ANALYZING MANAGERIAL DECISIONS: lnterwest Healthcare Corp.
Interwest Healthcare is a nonprofit organization that owns 10 hospitals located in three western states. Cynthia Manzoni is Interwest's CEO. Vijay Singh, Interwest's CFO, and the administrators of the 10 hospitals report to Manzoni.
Singh is deeply concerned because the hospital staffs are not being careful when entering data into the firm's management information system. This data involves information on patient intake, treatment, and release. The information system is used to compile management reports such as those relating to the costs of various treatments. Also, the system is used to compile reports that are required by the federal government under various grant programs. Singh reasons that without good information, the management and government reports are less useful and potentially misleading. Moreover, the federal government periodically audits Interwest and might discontinue aid if the reports are deemed inaccurate. Thus, Singh is worried about the managerial implications and the potential loss of federal funds.
Singh has convinced Manzoni that a problem exists. She also realizes the importance of an accurate system for both management planning and maintaining federal aid. Six months ago, she invited the hospital administrators and staff members from the corporate financial office to a retreat at a resort. The purpose was to communicate to the hospital administrators the problems with the data entry and to stress the importance of doing a better job. The meeting was acrimonious. The hospital people accused Singh of being a bureaucrat who did not care about patient services. Singh accused the hospital staffs of not understanding the importance of accurate reporting. By the end of the meeting, Manzoni thought that she had a commitment by the hospital administrators to increase the accuracy of data entry at their hospitals. However, six months later, Singh claims that the problem is as bad as ever.
Manzoni has hired you as a consultant to analyze the problem and to make recommendations that might improve the situation.
1. What are the potential sources of the problem?
2. What information would you want to analyze?
3. What actions might you recommend to increase the accuracy of the data entry?
4. How does your view of behavior affect how you might address this consulting assignment?
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.