Applying Economic Analysis
Firm managers 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 business cases; discover economic principles at work through participation in teaching experiments (either on the internet platform "Veconlab" or in the BI research lab); and work on computational tools that can be used directly in support of actual decision making. The course draws on recent advances in behavioral- and experimental economics to investigate the robustness and empirical content of economic analysis.
Different learning methods will be used in the course. These include lectures; case-work; partici-
pation 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 com-
putational 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 the internet
- The relationship between ownership and incentives
- Developing and using computational tools in support of actual decision-making (Excel and Python)
- Insights from behavioral- and experimental economics
Learning outcome knowledge
After completing the course students should:
- have knowledge of a relevant body of research in behavioral- and
- Written exam: 100%