Applying Economic Analysis

Introduction

Managers within a firm routinely face situations in which valuable time and effort has to be expended in thinking systematically and hard about the different courses of action that may be pursued. Often decisions are taken in environments that are uncertain, but where institutions are fixed and the actions of others can be taken as given. Managers also take actions in strategic environments where the final outcome depends on the beliefs and actions of others and where this is common knowledge. In particular, managers will encounter situations in which they can impact on the rules of the game by creating incentives that shape the behavior of others. Economic analysis works out principles for rational decision-making in varying economic environments. Good management requires a thorough understanding of such principles, as well as a sensitivity to the challenges of implementing the principles.

This course introduces students to economic analysis as a tool for making decisions in a multitude of situations that are at the core of running of a firm. In support of lectures students will solve relevant business problems and utilize computational tools that can be used directly in support of actual decision making.

Course content

Different learning methods will be used in the course. These include lectures; case-work; participation in teaching experiments; and development of computational tools in support of managerial decision making. Case-work will be discussed in class; there will be individual feedback on computational tools and on performance in teaching experiments.

The course will cover the following topics:

• Design of incentive systems (personell economics)
• Optimal contract design
• Bargaining for the allocation of scarce resources within and across firms
• Investments and the hold up problem
• Determination of production quantities and prices in different market structures
• Network externalities and the economics of information technology
• The relationship between ownership and incentives
• Developing and using computational tools in support of economic decision-making