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Utility Maximisation

In: The Theory of the Firm

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  • P. J. Curwen

Abstract

The term ‘utility maximisation’ is customarily applied to those models which hypothesise that managers set out to maximise their own utility rather than that of shareholders. Whereas shareholders are supposed to derive utility almost exclusively from profits, managers may derive utility from pursuing a whole range of possible objectives. Most obviously, managers can attempt to maximise their monetary rewards. Alternatively, they can set out to increase their leisure time and to make their lives generally as easy as possible. In so far as the term ‘utility’ is, in practice, more than a little vague it is possible to argue that any non-profit-maximising theory of the firm is a utility-maximising model. It is customary, however, to restrict the usage of the term to exclude, for example, the model of sales-revenue maximisation.

Suggested Citation

  • P. J. Curwen, 1976. "Utility Maximisation," Palgrave Macmillan Books, in: The Theory of the Firm, chapter 0, pages 127-134, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-15645-0_19
    DOI: 10.1007/978-1-349-15645-0_19
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