A few years ago, the Boston Globe reported that the city of Boston planned to spend $14 million to convert the FleetCenter sports arena and entertainment center into an appropriate venue for the Democratic National Convention (DNC). The city engaged Shawmut Design and Construction in a contractual relationship to complete the work, which was supposed to start 48 days prior to the commencement of the DNC on July 26. However, when negotiations between Boston’s mayor and the police union broke down, the Boston Police Patrolmen’s Association took to the picket lines surrounding the FleetCenter and prevented construction crews from beginning the work. The Globe reported that “a truck attempting to deliver steel turned around after a crowd of union members stood at a chain-link gate in front of the arena, shouting ‘back it up,’ and ‘respect the line, buddy.’” Moreover, the Globe reported that “On-duty police officers, who had been instructed to prevent pickets from restricting access, did not intervene.” Given the tight construction schedule, construction delays reportedly cost about $100,000 per day. Identify the principal–agent problem in this situation. Did the mayor and the city of Boston face the classical “hold-up problem” or another problem? Explain. (LO2, LO6)
A few years ago, the Boston Globe reported that the city of Boston planned to spend $14 million to convert the FleetCenter sports arena and entertainment center into an appropriate venue for the Democratic National Convention (DNC). The city engaged Shawmut Design and Construction in a contractual relationship to complete the work, which was supposed to start 48 days prior to the commencement of the DNC on July 26. However, when negotiations between Boston’s mayor and the police union broke down, the Boston Police Patrolmen’s Association took to the picket lines surrounding the FleetCenter and prevented construction crews from beginning the work. The Globe reported that “a truck attempting to deliver steel turned around after a crowd of union members stood at a chain-link gate in front of the arena, shouting ‘back it up,’ and ‘respect the line, buddy.’” Moreover, the Globe reported that “On-duty police officers, who had been instructed to prevent pickets from restricting access, did not intervene.” Given the tight construction schedule, construction delays reportedly cost about $100,000 per day. Identify the principal–agent problem in this situation. Did the mayor and the city of Boston face the classical “hold-up problem” or another problem? Explain. (LO2, LO6)
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