University of Northumbria Newcastle Business school Division of Economics and resource management EC425 MICROECONOMICS 2: ECONOMICS AND ORGANISATIONS SEMESTER 2 2003 Unit Tutor: Kevin Hinde Room: NB403 Te:01912273936 e-mail mailto: kevin hinde(@unn. ac uk Clickhttp://www.kevinhinde.com
University of Northumbria Newcastle Business School Division of Economics and Resource Management EC425 MICROECONOMICS 2: ECONOMICS AND ORGANISATIONS SEMESTER 2 2003 Unit Tutor: Kevin Hinde Room: NB403 Tel: 0191 2273936 e-mail mailto:kevin.hinde@unn.ac.uk Click http://www.kevinhinde.com
Unit Code/ Title EC425 MICROECONOMICS 2: ECONOMICS AND ORGANISATIONS Introduction Welcome to this second level one semester, core unit on economics and the organisation, which I hope you will enjoy By following this unit you should a recognise how important economic analysis is to our understanding of the organisation, whether in the public or private sector, and be able to apply the knowledge learnt to a variety of contexts a identify the wider implications resulting from the microeconomic analysis of organisations, particularly public policy solutions More specifically we are going to examine the following questions a Why do we need organisations and hierarchical organisational structures? a How can we resolve moral hazard problems (i.e. shirking) within organisations? a What are the efficiency implications of production and cost analysis? a What are the welfare implications associated with monopolistic and oligopolistic structures? This approach moves us from an internal examination of the organisation to its interaction within the industrial environment and thus its economic implications for society as a whole. We are going to use traditional neo- classical analysis and game theory to address these questions, and, as you are more familiar with some elements of the former I will begin the lecture programme by examining games. This form of analysis is pervasive in economics nowadays and so you will need to be aware of its importance from the outset Recommended texts Note that I am recommending 2 texts though you should only purchase one Besanko D and Braeutigam RR(2002 )Microeconomics. An Integrated Approach, J Wiley and Sons, New York arian H ( 2003)Intermediate Microeconomics. A Modern Approach, 6th edition, W Norton and Company, London However, both books do not quite cover the syllabus. The programme of
Unit Code / Title EC425 MICROECONOMICS 2: ECONOMICS AND ORGANISATIONS Introduction Welcome to this second level, one semester, core unit on economics and the organisation, which I hope you will enjoy. By following this unit you should recognise how important economic analysis is to our understanding of the organisation, whether in the public or private sector, and be able to apply the knowledge learnt to a variety of contexts. identify the wider implications resulting from the microeconomic analysis of organisations, particularly public policy solutions. More specifically we are going to examine the following questions: Why do we need organisations and hierarchical organisational structures? How can we resolve moral hazard problems (i.e. shirking) within organisations? What are the efficiency implications of production and cost analysis? What are the welfare implications associated with monopolistic and oligopolistic structures? This approach moves us from an internal examination of the organisation to its interaction within the industrial environment and thus its economic implications for society as a whole. We are going to use traditional neoclassical analysis and game theory to address these questions, and, as you are more familiar with some elements of the former I will begin the lecture programme by examining games. This form of analysis is pervasive in economics nowadays and so you will need to be aware of its importance from the outset. Recommended Texts Note that I am recommending 2 texts though you should only purchase one. Besanko D and Braeutigam R R (2002) Microeconomics. An Integrated Approach, J Wiley and Sons, New York. Varian H (2003) Intermediate Microeconomics. A Modern Approach, 6th edition, WW Norton and Company, London. However, both books do not quite cover the syllabus. The programme of
study set out below indicates the relevant chapters to be read in conjunction with the programme and I have indicated additional reading for weeks 3 and 4 where appropriate. Programme of Study There will be 17 lectures in total, plus one lecture period when an assessment exercise will be carried out there will be 2 seminar sessions and 4 Workshops where you will use the internet as a learning resource The following table outlines the programme of study Week Lecture Seminar Unit Introduction Start on Game VORKSHOPS Theory: Normal Games Introduction to the unit Key read Besanko D and Braeutigam RR chapter 14 Game Theory: Normal Games (Continued) y Re BesankoD and BraeutigamRR chapter 14 Game Theory: Extensive Form Games Key Reading Besanko D and Brautigam R chapter 15 section 5 pps657-668 Varian chapters 17 and 29 Firms and markets: Alchian and SEMINARS: Theory of Demsetz: Coase and williamson the firm articles Discussion of issues Douma and schreuder chapters 7, 8, 10 and 11 4 Principal Agent: Team Incentives Key Reading Principal Agent: Individual Incentive Schemes Douma and schreuder chapter 7 Varian chapter 36(difficult towards the end 5 Production Functions SEMINARS: Questions on production and costs Key Reading Besanko D and BraeutigamRR chapters 6 and 7
study set out below indicates the relevant chapters to be read in conjunction with the programme and I have indicated additional reading for weeks 3 and 4 where appropriate. Programme of Study There will be 17 lectures in total, plus one lecture period when an assessment exercise will be carried out. There will be 2 seminar sessions and 4 Workshops where you will use the internet as a learning resource. The following table outlines the programme of study. Week Lecture Seminar 1 Unit Introduction. Start on Game Theory: Normal Games Key Reading Besanko D and Braeutigam R R chapter 14 Varian chapter 28 Game Theory: Normal Games (Continued) Key Reading Besanko D and Braeutigam R R chapter 14 Varian chapter 28 2 Game Theory: Extensive Form Games Key Reading Besanko D and Braeutigam R R chapter 15 section 5 pps 657-668 Varian chapters 17 and 29. WORKSHOPS: Introduction to the unit. 3 Firms and Markets: Alchian and Demsetz; Coase and Williamson Key Reading Douma and Schreuder chapters 7,8, 10 and 11. Ricketts chapter 2 Principal Agent: Team Incentives Key Reading Schotter chapter 8 4 Principal Agent: Individual Incentive Schemes Key Reading Douma and Schreuder chapter 7 Varian chapter 36 (difficult towards the end) SEMINARS: Theory of the Firm Articles – Discussion of Issues 5 Production Functions Key Reading Besanko D and Braeutigam R R chapters 6 and 7 Varian chapters 18 and 19 SEMINARS: Questions on Production and costs
6 Production functions Besanko D and BraeutigamRR chapters 6 and 7 Cost Functions Key Reading Besanko D and Braeutigam RR chapters 8 and 9 Varian chapters 20 and 21 End of week 7. assessment 1 to be handed in Comment on the significance of a classic article on the firm 7 Cost Functions ORKSHOPS: Multiple choice work production and costs Besanko D and BraeutigamRR chapters 8 and 9 20 and 21 using the internet 8 Competition and Welfare y Re BesankoD and Braeutigam R chapters 9-11 Varian chapters 22 and 23 Monopoly and Welfare Besanko D and Braeutigam RR chapters 9-11 9 Capturing Surplus VORKSHOPS: Games monopoly and welfare Key Reading Issues Besanko D and BraeutigamRR chapter 12 Varian chapters 25 10 Cournot Oligopoly and Welfare Key Reading Besanko D and Braeutigam RR chapter 13 Other classical Oligopoly models and Welfare Key Reading Besanko D and Braeutigam RR chapter 13 Varian chapter 27 NO LECTURE. Assessment 2: ∧ ORKSHOPS: Oligopoly Multiple choice questions on games, models roduction, costs and suppl Easter break 12 Network Economics and the Information Economy Plen 13- Assessment 3: One hour Essay test 15
Production Functions Key Reading Besanko D and Braeutigam R R chapters 6 and 7 Varian chapters 18 and 19 6 Cost Functions Key Reading Besanko D and Braeutigam R R chapters 8 and 9 Varian chapters 20 and 21 End of Week 7. Assessment 1 to be handed in: Comment on the significance of a classic article on the firm 7 Cost Functions Key Reading Besanko D and Braeutigam R R chapters 8 and 9 Varian chapters 20 and 21 Competition and Welfare Key Reading Besanko D and Braeutigam R R chapters 9 -11 Varian chapters 22 and 23 8 Monopoly and Welfare Key Reading Besanko D and Braeutigam R R chapters 9 -11 Varian chapters 22 and 23 WORKSHOPS: Multiple choice work on production and costs using the internet 9 Capturing Surplus Key Reading Besanko D and Braeutigam R R chapter 12 Varian chapters 25 Cournot Oligopoly and Welfare Key Reading Besanko D and Braeutigam R R chapter 13 Varian chapter 27 10 Other classical Oligopoly models and Welfare Key Reading Besanko D and Braeutigam R R chapter 13 Varian chapter 27 WORKSHOPS: Games, monopoly and welfare issues. 11 NO LECTURE. Assessment 2: Multiple choice questions on games, production, costs and supply WORKSHOPS: Oligopoly models Easter Break Network Economics and the Information Economy Key Reading Varian chapter 36 12 Plenary 13 - 15 Assessment 3: One hour Essay test
Detailed Reading List (** Recommended Text) The relevance to each week is given in parentheses Alchian A and Demsetz H(1972) Production, Information Costs and Economic Organisation, American Economic Review, 62, pp. 777-95.(Weeks 3 and 4) Bolton P and Scharfstein d s(1998)Corporate Finance, the Theory of Finance and Organisations, Journal of Economic Perspectives, vol 12, No 4 pp 95-114( Weeks 3 and 4) Besanko d and Braeutigam RR(2002)Microeconomics. An Integrated Approach, J Wiley and Sons, New York.(All weeks except 3 and 4) Brickley J A, Smith Jr C W,& zimmerman(1996)Organisational Architecture A Managerial Economics Approach, Irwin, Boston, Mass (Weeks 3 and 4) Coase R H(1937) The Nature of the Firm, Economica, 4, p 386-405.(Weeks 3 and 4) Dietrich M(994) ransa action Cost Economics and beyond. Towards a New Economics of the Routledge, London ( Weeks 3 and 4) Dixit A K& Nalebuff B.J. (1991) Thinking Strategically. The Competitive Edge in Business, Politics, and Everyday Life. W.W. Norton Company London. ( Weeks 1 and 2) Douma S and Schreuder H(1998) Economic Approaches to Organisations second edition, Prentice Hall, London ( Weeks 3 and 4) Emerson et al(1988), The Economics of 1992, Oxford University Press (Weeks 5, 6 and 7) Fehr E and Gachter s(2000)Fairness and Retaliation: The Economics of Reciprocity, Journal of Economic Perspectives, vol. 14, No. 3, pp. 159-181 (Weeks 1 and 2) Ferguson C E(1972)Microeconomics, Third Edition, Irwin, Homewood linois (Weeks 5, 6 and 7) Gibbons R(1997) an Introduction to Applicable Game Theory, Journal of Economic Perspectives, vol 11, No 1, pp. 127-149.(Weeks 1 and 2) Gibbons R(1998) Incentives in Organisations, Journal of Economic Perspectives, voL. 12, No 4, pp. 115-132 (Weeks 3 and 4) Hargreaves-Heap s& varoufakis Y(1995) Game Theory. A Critical Introduction, Routledge. London. ( Weeks 1 and 2)
Detailed Reading List (** = Recommended Text) The relevance to each week is given in parentheses. Alchian A and Demsetz H (1972) Production, Information Costs, and Economic Organisation, American Economic Review, 62, pp. 777-95. (Weeks 3 and 4) Bolton P and Scharfstein D S (1998) Corporate Finance, the Theory of Finance and Organisations, Journal of Economic Perspectives, vol. 12, No. 4, pp. 95 – 114. (Weeks 3 and 4). **Besanko d and Braeutigam R R (2002) Microeconomics. An Integrated Approach, J Wiley and Sons, New York. (All weeks except 3 and 4). Brickley J A, Smith Jr. C W, & Zimmerman (1996) Organisational Architecture: A Managerial Economics Approach, Irwin, Boston, Mass (Weeks 3 and 4) Coase R H (1937) The Nature of the Firm, Economica, 4, p. 386-405. (Weeks 3 and 4) Dietrich M (!994) Transaction Cost Economics and Beyond. Towards a New Economics of the Firm. Routledge, London. (Weeks 3 and 4) Dixit A. K. & Nalebuff B.J. (1991) Thinking Strategically. The Competitive Edge in Business, Politics, and Everyday Life. W. W. Norton & Company. London. (Weeks 1 and 2) Douma S and Schreuder H (1998) Economic Approaches to Organisations, second edition, Prentice Hall, London. (Weeks 3 and 4) Emerson et al (1988), The Economics of 1992, Oxford University Press. (Weeks 5, 6 and 7) Fehr E and Gachter S (2000) Fairness and Retaliation: The Economics of Reciprocity, Journal of Economic Perspectives, vol. 14, No. 3, pp. 159 - 181. (Weeks 1 and 2) Ferguson C E (1972) Microeconomics, Third Edition, Irwin, Homewood, Illinois. (Weeks 5, 6 and 7) Gibbons R (1997) an Introduction to Applicable Game Theory, Journal of Economic Perspectives, vol. 11, No. 1, pp. 127 – 149. (Weeks 1 and 2) Gibbons R (1998) Incentives in Organisations, Journal of Economic Perspectives, vol. 12, No. 4, pp. 115 – 132. (Weeks 3 and 4) Hargreaves-Heap S & Varoufakis Y (1995) Game Theory. A Critical Introduction, Routledge. London. (Weeks 1 and 2)