ADEclass3_10-11_72 - ORGANIZATIONAL ECONOMICS 2010-2011...

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ORGANIZATIONAL ECONOMICS 2010-2011 Pablo Ruiz Verdú
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Session #3 Outline: Brief intro Efficiency: Review of Pareto efficiency The Efficiency Principle Examples and discussion No wealth effects and the Value Maximization Principle
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For next session: Readings: M&R, 35-48 (same as last time) Problem set 1, part 2.
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Session #3 Outline: Brief intro Efficiency: Review of Pareto efficiency The Efficiency Principle Examples and discussion No wealth effects and the Value Maximization Principle
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Organizational Economics Organizational Economics? Organizational Economics is Economics: Economic analysis: built upon individual choices Assumes individuals are ( at least boundedly” ) rational : have ( more or less well-defined ) goals/preferences choose most preferred ( not too bad ) alternatives ( most of the time ) Uses mathematical models to obtain predictions b we will make use of the models of consumer and firm behavior you studied in Micro I
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Organizational Economics Organizational Economics is about organizations. Economics you have seen so far focused mostly on equilibrium prices and quantities in markets. Little attention to: hat happens inside firms (Why, How do What happens inside firms (Why, How do they do what they do?) What determines what firms do How markets (which are organizations as well!) are organized Organizational Economics attempts to address these issues.
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We will not spend much time on the question “what is an organization”? Organizations: mechanisms that allocate tasks and resources. These mechanisms have to solve two main What is an organization? problems: Coordination: figure out what each individual should do and how to allocate resources to each individual. Motivation: ensure that tasks and resources are allocated in a way that gives the right incentives to individuals.
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Examples of organizations: Firms Markets (e.g. stock exchanges, electricity markets, over-the-counter financial markets, e-bay, “El rastro”) What is an organization? Universities Unions and employers’ associations Families Economic, political systems . ..
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Organizational Economics Our points of view: Manager/consultant : Best way to achieve organizational goals Regulator Best way to achieve societal goals Researcher, “enlightened” manager/regulator Explain and predict organizational evolution (to better achieve organizational/societal goals)
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Economic analysis of organizations We are going to start the course with some general / abstract concepts. Soon we will see how to apply them to the study of concrete organizational problems.
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Session #3 Outline: Brief intro Efficiency: Review of Pareto efficiency The Efficiency Principle Examples and discussion No wealth effects and the Value Maximization Principle
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1. EFFICIENCY AND ORGANIZATION
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Pareto domination: There is a group of individuals ( I ) and a set of feasible alternatives ( A ) Alternative X Pareto-dominates alternative Y if: no one in I prefers Y to X and at least some one
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ADEclass3_10-11_72 - ORGANIZATIONAL ECONOMICS 2010-2011...

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