Lahore University of Management Sciences
ECON 3110 – ECONOMICS OF ORGANIZATION AND MANAGEMENT
Instructor
Room No.
E-mail
Office Hours
Secretary
TA
Course Basics
Credit Hours
Lectures
Course Distribution
Core
Elective
Open for Student Category
Course Description
Fall Semester 2016-2017
Daud Ahmed Dard
TBA
[email protected],
TBA
TBA
TBA
4
2 x 100 minutes per week
No
Yes
Junior / Senior
In even the most market oriented economies, most economic transactions occur not in markets but inside managed
organizations, particularly business firms. This course introduces economic tools & techniques and eventually develops
a rigorous yet coherent framework for understanding the nature and workings of such organizations and their impact
on economic performance.
The first five modules cover almost all of the standard topics of the subject at a reasonable depth while module 6
covers some critical topics in more depth and introduces and integrates two new topics.
En-route to developing the framework, the structure, management and dynamics of typical manufacturing and service
organizations will be analyzed via mini case studies. However, the final module is devoted to analyzing the economic
organization and management of a few non-routine type organizations.
It is assumed that students registered in this course have covered the topics of information, risk and basic game theory
in their earlier microeconomics courses.
Course Objectives
After taking this course, students will be able to:
-demonstrate the knowledge acquired in the course by conducting economic analyses of normative and positive
aspects of structure and management of organizations
-follow the economics literature on organizations and management
-apply the tools and concepts taught in the course in a wide range of real life professional settings such as in
management consulting, general management, managerial careers in finance & banking, entrepreneurship etc.
-undertake graduate study in the subject
Course Prerequisites
-Principles of Microeconomics
-Calculus
-Intermediate Microeconomics (Highly Recommended)
Grading Break up
Quizzes: 4 (5% each – MCQs) = 20%
Assignments: 4 (5% each – problem solving type) = 20%
Attendance: 5%
Final Exam: 55%
Reading
(Course Pack will be available)
Required Reading:
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“Economics, Organization and Management” by Milgrom & Roberts, Prentice-Hall (1992)
Journal articles as mentioned in course schedule
Supplementary Reading:
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Other:
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“The Modern Firm: Organizational Design for Performance and Growth” by John Roberts, Oxford University
Press (2007).
“Firms, Contracts and Financial Structure” by Oliver Hart, Oxford University Press (1995).
“Theory of Industrial Organization”, by Jean Tirole, MIT Press (1993) - (Only chapters on Theory of the Firm and
Game theory)
“Economic Institutions of Capitalism” Oliver E. Williamson, Free Press (1985) – A classic
“Candles in the Dark: Successful Organizations in Pakistan’s Weak Institutional Environment”, by S.M Turab
Hussain and Mahmood Ali Ayub, Oxford University Press (2015).
Multimedia Power Point Slides:
A carefully designed and user/reader friendly multimedia PPT slide will be made available a week before each lecture.
The slide (i.e., one for each lecture) will contain introduction to the key aspects of the topics to be covered in the
lecture and /or a conceptual summary and solution of any technical material. Students’ learning experience will greatly
be enhanced if they regularly go through PPT slides before coming to each lecture, raise any questions via either
participating in online class discussion forum or directly e-mailing me.
Course Schedule:
Lecture /
Module
Topic / Title
Readings
-Does Organization matter? A few real life examples
-Economic Organization and Efficiency
-Introduction to the Course
Chapter 1
Chapter 2
Lecture 2
-Using Prices for Coordination and Motivation
Chapter 3
Lecture 3
-Coordinating Plans and Actions
Lecture 4
-Economizing on Information and Communication,
Hurwicz Criterion (an introduction)
Chapter 4
Lecture 5
-Coordination and Business Strategy
-The role of Management in coordination,
centralization and decentralization
Chapter 4
-Milgrom and Roberts, “The Economics of modern
manufacturing: technology, strategy and organization”
American Economic Review, 1990.
-Prahalad and Hamel. “The Core Competence of the
Corporation”, Harvard Business Review, 1990.
Lecture 1
Module 1
Module 2
COORDINATION: MANAGEMENT & MARKETS
Chapter 4
MOTIVATION: INFORMATION, CONTRACTS AND INCENTIVES
Lecture 5
-Bounded Rationality and Private Information
Chapter 5
Lecture 6
-Moral Hazard and Performance Incentives
Chapter 6
Module 3
EFFICIENT INCENTIVES: OWNERSHIP, PROPERTY RIGHTS AND CONTRACTS
Lecture 7
-Risk Sharing and Incentive Contracts
Chapter 7
Lecture 8
-Rents and Efficiency
Chapter 8
Lecture 9
-Ownership and Property Rights
Lecture 10
Design of Mechanisms
Module 4
Lecture 11
Lecture 12
Lecture 13
Chapter 9
-Shleifer and Vishny,.“State vs. Private Ownership”, Journal
of Economic Perspectives, 1998.
Hurwicz, L. “The Design of Mechanisms for Resource
Allocation” American Economic Review, 1973.
FINANCE: INVESTMENTS, CAPITAL STRUCTURE AND CORPORATE CONTROL
- Strategic Investments as Design Decisions, The Fisher
Separation Theorem (quick review), Economic vs.
Accounting profit
-Financial Structure Decisions: MM analyses, The
allocation of investment capital by markets
-Investment Risk and the Cost of Capital, Short sighted
financial markets and shortsighted management,
Implications of the new theories of Organizations
-Financial Structure, Incentives and Value
-Signaling and Financial Decisions
Chapter 14
Chapter 14
Chapter 15
-Corporate Governance & Control in advanced and
developing economies: theory and survey
TBA
Lecture 15
-Internal Structure of the firm
Chapter 16
Lecture 16
-Vertical Boundaries
Chapter 16
Lecture 17
-Horizontal Scope and Structure
Lecture 18
-Evolution of Business and Economic Systems
Lecture 14
Module 5
Module 6
THE DESIGN AND DYNAMICS OF ORGANIZATIONS
Strategy & organization
Lecture 20
Technological Innovation & organizations
Lecture 21
Authority in organizations
Lecture 22
Incentives in Hierarchies
Lecture 23
Decisions in organizations
Lecture 24
Leadership & Corporate Culture (economic analysis)
Lecture 25
Lecture 26
Lecture 27
Lecture 28
Chapter 17
ADVANCED ANALYSES OF CERTAIN TOPICS IN ECONOMICS OF ORGANIZATION AND MANAGEMENT
Lecture 19
Module 7
Chapter 16
-Holmstrom and Roberts, “The Boundaries of the Firm
Revisited”, Journal of Economic Perspectives, 1998.
-Roberts and Salonar, “Strategy & Organization”,
Handbook of Organizational Economics, 2012
-Azoulay and Lerner “Technological Innovation and
Organizations” Handbook of Organizational Economics,
2012.
-Aghion and Tirole. “Formal and real
Authority in organizations”, Journal of Political Economy,
1997.
-Bolton and Dewatripont “Authority in Organizations”,
Handbook of Organizational Economics, 2012.
-Mokherjee, Dilip “Incentives in hierarchies”, Handbook of
Organizational Economics, 2012.
-Athey and Roberts, “Organizational Design:
Decision Rights and Incentive Contracts”, American
Economic Review, 2001.
-Gibbons, Matouschek and Roberts “Decisions in
Organizations” Handbook of Organizational Economics,
2012.
-Hermalin, Benjamin “Leadership and corporate culture”
Handbook of Organizational Economics, 2012.
COURSE REVIEW TOGETHER WITH APPLICATION TO UNDERSTAND THE ECONOMICS OF SELECTED ORGANIZATIONS
1.Open Source
2. Venture Capital
3.Creative Organizations
4.Banks, Investment Banks and Rating Agencies (and
what went wrong in the recent financial crisis)
TBD
1. Tirole & Lerner, 2005. “The Economics of Technology
Sharing: Open Source and Beyond” Journal of Economic
Perspectives.
2. TBA
3. Caves, 2003. “Contracts between Arts and Commerce”,
Journal of Economic Perspectives.
4.TBA