Objectifs

In modern economies the total value of transactions within firms is approximately equal to that in markets. Moreover, the world-wide value of mergers and acquisitions is in the trillions. Understanding why firms exist, how they evolve over time, and how they operate is therefore essential. The course introduces classic and modern versions of the theory of the firm and relates the different models to empirical data (experiments, field data, and case studies). We cover theory and evidence on vertical integration and outsourcing, analyze the impact of explicit and implicit incentives on performance, and discuss the role of the internal organization of firms.

Contenus

In the first part of the course we study the foundations and the boundaries of the firm. We first discuss why firms and markets coexist and discuss the advantages and disadvantages of different forms of organizing economic exchange. Next we turn to the determinants of the size of firms and investigate why firms sometimes expand (mergers and acquisitions) and why they sometimes put certain transactions back to the market (outsourcing). This discussion will lead us to some of the classic theories of the firm such as transaction cost economics and the property rights approach. When exploring the extent to which these theories explain the developments that we observe in reality, we will see that many empirical findings are in line with those ideas. At the same time, however, there are also important empirical facts, that are difficult to explain with the classic theories. Therefore, we will also consider more recent theories of the firm which integrate behavioral insights from psychology. These new models can be useful to understand some of the empirical facts which are otherwise regarded as puzzles.

Using a series of real-life case studies we will examine how the discussed theories can inform practical management decisions in the context of vertical integration and outsourcing. You will work on the case studies in groups. Your task will be to put yourself in the shoes of a consulting team that needs to prepare a presentation for the top management of a company.

The second part of the course focuses on the motivation problem in organizations. In this part we will discuss how managers can motivate their employees to operate in the interest of their firm. The principal-agent model delivers important insights on this issue. It illustrates how managers should structure compensation plans, which information they should use and how closely they should monitor their employees depending on the firm's technology, the characteristics of the work environment and the employee's preferences. Building on these basic principles for the provision of explicit incentives, we will extend the agency model and apply it to more complex and realistic environments where multi-tasking, team work and intertemporal spillovers make the motivation of workers difficult. We will see that in those contexts extrinsic motivation through rewards and sanctions alone will often not suffice to achieve the desired results. This leads us to a discussion of the role of social motives, norms and reputation formation in the organizational context.

The case studies for the second part will be related to employee motivation problems in various industries and contexts. We will again rely on group work and simulate the task of a consulting team that needs to advice managers of a company.

Evaluation

1ère tentative

Examen:

Ecrit 2h00 heures

Documentation:

Non autorisée

Calculatrice:

Non autorisée

Evaluation:

Regular exam: written, 2 hours, doc + calculator not permitted (75%) + group work (25%)

Rattrapage

Examen:

Ecrit 2h00 heures

Documentation:

Non autorisée

Calculatrice:

Non autorisée

Evaluation:

Rattrapage : written, 2 hours, doc + calculator not permitted (100%)