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A disequilibrium mechanism: When managerial decisions cause macroeconomic instability

Author

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  • Maziarz Mariusz

    (Institute for Market, Consumption, and Business Cycles Research–National Research Institute, Aleje Jerozolimskie 87, 02-001Warszawa, Poland, mariusz. mm@gmail.com.)

Abstract

The paper aims to develop our understanding of the processes and mechanisms leading to economic instability. The research design and methods: the paper employs a simple game-theoretic model aimed at depicting why the mechanism connecting nonmaterial motivation of managers and the propensity of economic systems is unstable. The findings are as follows: managers, driven by the nonmaterial value of work, choose strategies that maximize the likelihood of prolonging their employment. Shortsighted CEOs may prefer strategies that offer smooth returns and an unlikely “catastrophic event.” If the unification of strategies occurs, the situation leads to a crisis and recession in the long run. The model put forth in this paper is shown to resemble the mechanism of the 2007-2008 financial crisis.

Suggested Citation

  • Maziarz Mariusz, 2019. "A disequilibrium mechanism: When managerial decisions cause macroeconomic instability," Economics and Business Review, Sciendo, vol. 5(1), pages 79-92, March.
    • Handle: RePEc:vrs:ecobur:v:5:y:2019:i:1:p:79-92:n:5
    DOI: 10.18559/ebr.2019.1.5
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    More about this item

    Keywords

    disequilibrium mechanism; causes of recession; macroeconomic instability; mechanistic evidence; corporate governance; CEOs incentives;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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