Agency Problems in Early Chartered Companies: The Case of the Hudson’s Bay Company”.


1. [Reading] For this question, you are asked to read PART OF the article, “Agency Problems in Early Chartered Companies: The Case of the Hudson’s Bay Company”.

You ONLY need to read PART of the article, from “A SYSTEM OF CONTROL” on p. 860 to “less likely to cheat” on p. 872.


a. Write a 3-2-1 report on the article using the form provided on the course web site. (12 marks)

Note: Please try to keep your answer to each question under 100 words . If you can answer a question in 6 words, that’s great!

Question 1

What are the 3 most important concepts, ideas or issues in the reading?

Briefly explain why you chose them.

Any quotes must be in quotation marks and cited properly in APA format.

Question 2

What are the 2 concepts, ideas or issues in the article that you are having the most difficulty understanding, or that are missing but should have been included?

Briefly explain what you did to correct the situation (e.g. looked up an unfamiliar word or a missing fact), and the result.

Cite any sites or sources used in APA format .

Question 3

What is the main economic story of the paper?

(Economics studies the allocation of limited resources among unlimited needs and wants.)

B) A ‘principal – agent’ or ‘agency’ problem is said to exist when a principal hires an agent to perform a task, but can only observe the result of the task, and not the effort of the agent. This gives the agent an incentive to ‘shirk’, or work at less than capacity. (“So sorry I only caught one fish this week, boss – I fished twelve hours a day, but the fish didn’t bite, honest!”) Based on what you have read, briefly explain how the Hudson’s Bay Company took care of its principal-agent problem. (2 marks)

Note: If you need more information on the nature of the principal-agent (or ‘agency’) problem, read the section of the article titled ‘Bearing the Charge Without Having the Advantage’, starting on page 856, which has a nice discussion of it.

2. [‘Raphing] The authors of ‘Indians, the Beaver, and the Bay’ needed to check that a fall in beaver skins traded at Fort Albany represented a fall in the beaver population, and not (just) a reduction in fur-trapping effort. Marten skins, also traded by the Indians, had a constant price in relation to beaver skins: 1/3 Marten skin per (Made) Beaver skin. Because of this, “harvests of marten and beaver should have moved together unless one of the species was being depleted” (p. 476). Since the price of marten was fixed relative to the price of beaver, the quantity supplied of marten should move together with the quantity supplied of beaver unless once of the species was becoming relatively more expensive to hunt (for example, by becoming more difficult to find).

The authors provide the relevant data as Table 2, but do not plot it (instead they report a correlation coefficient of 0.16[footnoteRef:1]). We’ll use a scatter or ‘x-y’ plot to analyze whether beaver and marten skins went up or down together. [1: A correlation coefficient, or r, of 0.16 implies an r2 of 0.16 x 0.16 = 0.0256. That, in turn, means that only about 2.56% of the variation in beaver skins can be explained by changes in the trade of marten skins. If you use Excel to answer this question, and run a linear trend-line through the full data in Table 2 of the paper, you should find that the r2 for the trend-line is 0.02554, confirming the correlation coefficient cited in the original article.]

For your convenience, I’ve reproduced Table 2 and created a new table with fewer data points for students doing this question by hand. I have also plotted the data as a line graph, so that you can see how the harvests changed with time.

a. Is your graph consistent with a fall in the beaver population? That is…

· (3 marks) Is there anything in your graph that contradicts or supports the hypothesis of a fall in the beaver population? Briefly explain your reasoning. (Note: For full marks it is NOT enough to point out that there is no strong correlation between the two series – you need to be able to argue for or against a fall in the beaver population).

· (2 marks) Is it possible that the marten population increased, instead? Briefly explain your reasoning.

3. [Research] This question will introduce you to the Canadian Register of Historic Places, a web site you may find useful as you search for a site to be the subject of your group project.

a. Follow these steps to find a site of economic historical significance in Victoria. To obtain credit for answering this question, write down the name of the site, and its associated web page.

i. Go to

ii. Click on ‘English’ (or Français, if you wish, but this walkthrough assumes you clicked on ‘English’).

iii. Beneath the banner image, you’ll find a box labeled ‘Search the Canadian Register’. Click on ‘Advanced Search’, just below.

iv. You should now be on the Advanced Search Screen. In the Province/Territory drop-down menu, select British Columbia. For ‘Location’, write ‘Victoria’. Click ‘Search’.

v. This will give you a list of the 275 registered historic places in Victoria. Browse through them and find one that you find interesting and relevant to economic history.

vi. (Optional) You may use the remaining Advanced Search fields to help narrow things down.

Note: You may NOT pick the Brackman-Kerr Milling Company Building, since this was used as the sample answer.

(5 marks) Site Chosen (Use APA format for the citation):

b. Briefly explain, in your own words, why the site you chose is of interest to economic historians. (10 marks)


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