<abstract xmlns="http://www.w3.org/1999/xhtml"><p>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.</p></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.

A disequilibrium mechanism: When managerial decisions cause macroeconomic instability

Institute for Market, Consumption, and Business Cycles Research–National Research Institute

Economics and Business Review

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

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 disequilibrium mechanism: When managerial decisions cause macroeconomic instability

Published Online: Apr 07, 2019

Page range: 79 - 92

Received: May 09, 2018

Accepted: Dec 15, 2018

DOI: https://doi.org/10.18559/ebr.2019.1.5

Keywords
disequilibrium mechanism, causes of recession, macroeconomic instability, mechanistic evidence, corporate governance, CEOs incentives

© 2019 Mariusz Maziarz et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

A disequilibrium mechanism: When managerial decisions cause macroeconomic instability

Published Online: Apr 07, 2019

Page range: 79 - 92

Received: May 09, 2018

Accepted: Dec 15, 2018

DOI: https://doi.org/10.18559/ebr.2019.1.5

Keywordsdisequilibrium mechanism, causes of recession, macroeconomic instability, mechanistic evidence, corporate governance, CEOs incentives

© 2019 Mariusz Maziarz et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 3.0 License.

Keywords
disequilibrium mechanism, causes of recession, macroeconomic instability, mechanistic evidence, corporate governance, CEOs incentives