CFA Practice Question

CFA Practice Question

The managers of the Bonneville Power Administration, a federal agency, are in charge of marketing federally generated electric power in the Pacific Northwest. Economic thinking indicates that these managers
A. will be immune from special interest pressures, since they are federal employees.
B. are likely to pursue personal objectives at the expense of economic efficiency, because monitoring their actions is difficult.
C. are likely to possess the necessary information to pursue efficiency goals and they have the incentive to do so, as long as all the managers actually live in the region and use the agency's services.
Explanation: Government operated firms tend to suffer from poor managerial incentives. That is, managers of these firms are likely to not pursue efficiency as vigorously as private sector firms because the owners of the firm, the voters, are unable to policy their behavior and decisions. They will thus pursue personal objectives more frequently on the job.

User Contributed Comments 4

User Comment
visiblebob This is a pretty jaded view of government, even if it is true I'm not sure it should be used like this. A more appropriate answer might have been "lack private sector incentives and thus may not pursue the most efficient business practices." That would have made it a little better, but not much.
chandsingh I agree, the only reason i realised they wanted b is because of the principal agency problem and that they would want an answer reflecting this issue.
MaresaJaden Good call by chandsingh on recognizing what concept they are trying to test...
mary11 I need a government job.
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