Managerial Economics

Module code: EC3071

Module co-ordinator: Dr Piercarlo Zanchettin

In this module you will study how firms and managers structure contracts and the efficiency consequences of contracting in the presence of private information and hidden actions. This analysis will help you to understand the characteristics of contracts and organisations which regulate a variety of economic relationships.

For instance, we can explain how firms design contracts to incentivise their employees/managers/salespeople to provide effort; how firms incentivise their Chief Executive Officers (CEOs) to invest in risky but profitable projects; and how internal labour markets can help firms in screening their existing workers.

Topics covered

  • Complete contracting: efficiency principle and Coase theorem
  • Moral hazard and incentive contracts
  • Moral hazard when output is not contractible
  • Moral hazard in teams
  • Adverse selection, signalling and screening
  • Adverse selection and managerial financial decisions
  • Internal labour markets: selection and incentives in hierarchical organisations 
  • Private information and inefficient bargaining
  • Incomplete contracting and specific investment

Learning

  • 20 one-hour lectures
  • 5 one-hour seminars

Assessment

  • Exam, 90 minutes (100%)