What is Williamson’s theory of managerial utility maximization?

The managerial utility function: U=f(S,M,π_D). Meaning, managers derive personal utility from things other than profits or sales: - Staff (S). Likes to have power over many employees (empire building) - Perks (M). Large office, company car, dinners, etc. - Discretionary profit (π_D): the higher this profit, the higher the payout to owners, the more secure the manager’s job is. The manager faces a constraint: π_D=π(S)-(M+T)-π_0 where T = tax and π_0= owners’ minimum acceptable profit. We can see the model below, characterized by: - Diminishing returns: π(S) is first increasing but eventually declines. - Profit maximization: staff expenditure S1 and discretionary profit π_(D_1 ) - Utility maximization: staff expenditure S2 and discretionary profit π_(D_2 )