Economics of Organisation

Module code: EC7071

Module co-ordinator: Dr Martin Hoskins

Description

The economics of organization is concerned with the problems of controlling and directing large organizations. The module will be particularly concerned with the problems which arise from the separation of ownership from the control of large business organizations. Although these are typically studied in the context of large capitalist organizations, similar problems arise in large publicly owned organizations such as the National Health Service in Britain and state-owned businesses in China. In such organizations, there is typically a divergence of interests between the owners of the organization, whether they are shareholders or the state, and the managers who are responsible for the everyday running of the organization. The problems are seriously compounded by the asymmetry in the information available to owners and managers. This asymmetry is compounded in complex organizations by many layers of management.

Topics Covered

• The neoclassical profit maximizing model of the business firm
• The limitations of profit maximizing
• Transactions costs, the ‘hold – up’ problem and the scope of organizations
• Owners, management, external finance and agency cost.
•  The principal- agent problem, incentive schemes and asymmetric information
• Problems with incentive schemes
• The ‘team incentive problem’
•  There will be a detailed consideration of these problems in the context of the failure of ENRON and other business failures

Learning

• 20 one hour lectures
• 5 one hour tutorials

Assessment

This module is worth 15 credits. It will be assessed by a two-hour examination (100%).