Question

Use only the information given in a question to answer that question—assume ceteris paribus unless otherwise specified.

Answer all questions correctly.

1. Nearly all cities are non-profit organizations and elected officials are supposed to maximize the welfare of their city.[1] Part of doing this involves hiring managers to operate the various service-providing departments (e.g., trash collection, street repair, etc.).[2] Suppose cities of all sizes across your state/province/region become for-profit corporations. They will issue stock, the stock will be traded on a national exchange (e.g., NYSE), and they will have a Board of Directors which will appoint all city officials. Any economic agent (i.e., person or organization) with the means may purchase stock if legally permitted. As usual, shareholders will elect members of the Board. Furthermore, the city will no longer be permitted to levy taxes. Assume all stockholders have a share of ownership in the city.

1. Will the new system increase or decrease incidents of Moral Hazard by city managers compared to the old system? To help guide your answer, choose one department manager and one (broad) task that person directs. Consider the incentives this person faces under the two regimes and go from there. Explain your answer in under 1 page. Then compare the incentives this manager faces under the two systems.

2. List and discuss 2 externalities (positive and/or negative) which would result from having for-profit cities. Clearly state who the recipients are of the externalities as well as the source(s). Remember to choose and clearly state a primary intent.

[1] They may or may not do this according to their own scruples.

[2] Some cities (e.g., Cincinnati, Ohio) have a City Manager who runs the day-to-day operations. The elected officials appoint this individual to carry out their policies. This person has no policy-making authority.    

Answer 1

A)TheThe old system which involves hiring managers to operate the various service providing departments like trash collection and street repair activities it's like non profit organisational activities .but other side the profit corporation and their stock issue way here they appoin the city official as economic agent that means they can purchase these issued stock if legally permitted and after that all the stockholder become the owner of the city. Here this change made an incidents of moral hazard in cities because the ownership in the hands of these few individualised shareholders so that sure to increase the incidents of moral issues.The system which lead to monopoly creation to to individualised persons.But it's more comfortable and safety to control and ownership vest with the local government .As the old system maintain a moral values in all persons including managers but the new system may deviate from this moral ethics and values due to their power.
Based on incentive the second one is more better than the old system.because that two system is very totally different in the incentive system. First one is limited incentive and new system can get more earnings and incentives .As per the power and incentives if new system lead to misuse the positions of managers in the new system.

B) In the profit cities ,the externalities in the recipient side is the managers here it have positive as well as negative nature.
Positive externalities is the managers or the recepient having the positive incentive from the cities that is not directly involving the activities by the managers but it also helpful to donot pay the taxes to the government .so the the the manager recipient point of view it's a major positives in the incentives and outcomes.
The negative externalities means here as a point of view of government affect a negative side not get the result or revenue back in the form of income or tax.and also it is very unfair to the government and the city also.
The some of household in negative externalities affect and some are getting positive externalities.The managers getting more positive externalities. Here incentive base more benefit to the business persons or managers.it is actually done in some cities (e.g., Cincinnati, Ohio) have a City Manager who runs the day-to-day operations. The elected officials appoint this individual to carry out their policies. This person has no policy-making authority. So it is clear example of externalities.