What determines how far a real-estate agent will drive to show a house?

Pricey Gas Leads to Lower Home Prices 
by: Adam Bonislawski
Oct 23, 2015
Click here to view the full article on WSJ.com

TOPICS: Supply and Demand

SUMMARY: When the cost to fill a tank is high, real-estate agents won't drive as far to market a property, concludes a paper by two universities. From the related article: "A recent study in the Journal of Housing Research from faculty at Longwood University in Farmville, Va., finds that for every mile between a property and its listing agent's office, average time on the market goes up 0.36% and the overall likelihood of selling goes down 0.5%. To put that in more concrete terms: Taking two equivalent houses-one down the block from its listing agent and the other 15 miles away-the one farther away will take roughly 5% longer to sell and has a 7.5% lower chance of selling at all." Evidently, according to the author's new paper, as gasoline prices increase, this distance-from-the-office effect is exacerbated.

CLASSROOM APPLICATION: Students can evaluate the effect of gasoline prices on the willingness of real estate agents to show homes that are further from their offices and therefore on the prices of these homes. One interesting issue is whether this gasoline-price effect is larger for younger real estate agents.

QUESTIONS: 
1. (Introductory) What is the effect of an increase gasoline prices on the willingness of real estate agents to show homes?

2. (Advanced) When deciding whether to show homes that are closer to their offices or ones that are further away, why would less-experienced agents be more influenced than experienced ones by increases in gasoline prices?

3. (Advanced) What is the effect of increases in gasoline prices on homes that are closer to job centers and ones that are further from job centers?

Economic Value Added

This article in the WSJ reports that more firms are moving away from stock incentives and towards tying pay to "a nonstandard measure reflecting a company's operating earnings and cost of capital. Companies say the measurement, also called residual earnings or 'economic value added,' more closely links employees' incentives to spending and budget decisions they make." Some juicy quotes and two questions follow. I hope that students of Managerial Economics say "Duh" after reading the quotes.

Juicy Quotes

"'Whatever compensation scheme you have, that's exactly what your employees are going to respond to,' says Daniel
Rinkenberger, CFO of Kaiser Aluminum Corp.,which has used economic profit to decide short-term incentives for key
employees since 2006. 'It's driving them to do things our
shareholders want, like not having excess assets in the pool. It drives people to be more efficient in how they have inventory deployed.'

"PepsiCo's new focus on economic profit will lower its capital spending to about 4.5% of sales this year, down from an historical average of about 5.5%, says Mr. Johnston, because employees are making better decisions. The company also has been able to cut the sums of money it has tied up in accounts receivable and inventory, boosting cash flow."

Questions

1. Why does economic profit link employees' incentives more closely to the spending and budget decisions they make?
2. Which gives workers more autonomy, incentives tied to stock prices or those tied to economic value added?