Economics of Organisation

Module code: EC7071

In this module you will investigate the problems of controlling and directing large organisations, especially those problems which arise from the separation of ownership and control. Although these are typically studied in the context of large businesses, similar problems arise in large publicly owned organisations such as the NHS or state-owned businesses in China. In these organisations there is typically a divergence of interests between the owners - whether they are shareholders or the state - and the managers who are responsible for the everyday running of the organisation. These problems are seriously compounded by differences in the information available to owners and managers, and also by multiple layers of management. We will take  detailed look at these problems in the context of notable business failures including the famous case of ENRON.

Topics covered

  • Neoclassical profit maximising model of the business firm
  • Limitations of profit maximising
  • Transactions costs, the 'hold-up' problem and the scope of organisations
  • Owners, management, external finance and agency cost
  • Principal-agent problem, incentive schemes and asymmetric information
  • Problems with incentive schemes
  • ‘Team incentive problem’