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The other reason for participating in an auction is to resell the item or use it for
commercial use. In such a situation the bidder's valuation of the auctioned item is
determined by his estimate of the future resale value of the item. So the item is actually
worth the same to all, however no one actually knows what that common value is. Think
of business houses trying buy a piece of land to aquire mineral rights. Each has
different information and different estimates of the future value of this land and
consequently would bid differently for it.
William Vickrey (1961) modeled four different types of single unit auctions:
English auction - This is the most familiar form of an auction; it is also known as
an open outcry or an ascending price auction. The type of auction is commonly
used to sell wine, art, antiques, cattle, tobacco, and many other goods.
Dutch auction - In the Netherlands, this form is used to sell produce and flowers,
and hence the name. This is also known as a descending price auction. In
Zamibia they use this auction to sell fish. The bidding starts at an a very high
price and is progressively lowered until a buyer claims the item.
I 1 y
II 2 y/2
Suppose that the employer believes that there is a level of education y* below which
productivity is 1 and above which productivity is 2. His offered wage schedule W(y) will
be:
We can see that bad money drives out the good because people keep what
they value, and trade what they can. In this case, what people value is gold,
for its inherent value. But besides money, people also value time and energy,
skill and effort. This leads me to propose that the bad always drives out the
good in any enterprise, including in management and governance. This goes
contrary to Adam Smiths idea of the invisible hand, where each person,
working for their own self-interest, inadvertently furthers the good of society.
In management, a part of the idea that the bad drives out the good is the
Peter Principle. The principle was developed in public schools in Canada, and
it can still be seen at work. It describes the situation where good teachers
are promoted to principal. This leaves the mediocre and poor teachers
behind, teaching. Good principals are promoted to superintendent, leaving
behind the mediocre and poor principals. Good superintendents are
promoted to the district administration, leaving behind the mediocre and
poor ones. In the case of each individual, he or she is promoted to their level
of incompetence. Obviously, hierarchies arent sufficiently wide to promote
everyone to their level of incompetence, so some positions will continue to
be competently staffed. It does explain, though, why middle management is
often incompetent.
There are more insidious reasons that bad management drives out good
management. One reason is the cost. If five talented managers can very
effectively run an organization, three mediocre managers can passably run
an organization for far less money. Further, if a manager is tasked with
supervising a department, but without producing any real measurables
except the work of others, a very human manager will soon find the least
amount of effort it is possible to expend; that is to say, people are lazy.
Certainly, harder work could translate into intangibles such as team spirit,
morale or the ability to inspire collaboration, but the managers job doesnt
normally depend on any of these things, only that the work continue to get
done. In this way, laziness drives out productivity, and not just in managers.
In fact, people who pride themselves on their productivity are likely to
transfer to a different department, or change jobs to a company that still
values productivity.
Bad governance also drives out good governance. Good governance, to me,
means representing the needs and desires of shareholders or constituents,
and acting on their behalf. It means communicating a vision, providing
leadership and guidance. That sounds like a lot of work. I know of people who
are willing to put in the time and effort, but there are too few of them. Worse,
it doesnt last. Leaders become complacent, believing that their track record
speaks for them, or that relationships from the past dont need to be
refreshed. In this case, fresh energy and enthusiasm need to be injected into
the organisation. This is why we change our government every couple
elections, even if it just means replacing old faces with new ones. We are
really replacing complacency with energy and enthusiasm.
Entropy is a nefarious force that affects all aspects of our world. It means
that, in order to progress and grow, or even just to keep an organization
functioning, requires constant effort and energy. Anything less will cause the
bad to drive out the good until an eventual collapse.