Lahore University of Management Sciences

ECON 3110 – ECONOMICS OF ORGANIZATIONS AND MANAGEMENT

Spring Semester 2022-2023
Instructor Daud Ahmed Dard
Room No.
E-mail daud@lums.edu.pk
Office Hours TBA
Secretary Mohammad Rashid
TA TBA
Course Distribution
Core No
Elective Yes
Open for Student Category Junior / Senior
Course Description
In even the most market-oriented economies, most economic transactions occur not in markets but inside managed
organizations, particularly business firms. This course covers the economic analysis of such managed organizations and
covers the broader topic of organization of economic activities in firms versus markets.
Course Objectives
Core objectives
-introduce economics frameworks for explaining the existence of non – market, managed organization of economic
activity
-introduce economics principles for management and design of organizations
-conduct intermediate level analysis of key models of ‘coordination’ and ‘motivation’ within organizations, and
examination of their interaction with strategy and organization of financing
In addition,
-application of the above in:
a. understanding how developments in IT, data analytics and communications technologies are creating new ways of
organizing economic activity and impacting the existing organizational forms
b. understanding the rationale behind the designs of a wide range firms including but not limited to those in creatives
industries, financiers of innovation and entrepreneurship i.e., venture capital, and the economic and business systems
around the world.
Course Prerequisites & What to expect in the course:
-At least ‘Principles of Microeconomics’, ‘Calculus’. ‘Introduction to Game theory’ will be highly useful
- We will frequently use game theory and basic optimization techniques for deriving and interpreting economic models
related to economics of organization and management. In addition, many real-life case studies and empirical work
will be discussed in the course. Note: This is not a typical b-school course on organization ‘behavior’ nor a
‘descriptive’ management course.
Examinations & Grading Break up
Midterm Exam: 30% - Closed book / closed notes.

Final Exam: 35% - Closed book / closed notes.

Quizzes: 3 (with n-1), 5% x 2: 10%

CP: 5%

Group Project: 20%

Reading
1. Required Reading:
• “Economics, Organization and Management”, by Paul Milgrom & John Roberts, Prentice-Hall (1992)
(EOM)
• Journal articles – as mentioned in the course schedule on next page.
• Case Studies: The above book has ample case studies and we will go through most. Some recent case studies /
surveys on Coursera, EdEx (online education), Amazon, and Daraz.com will also be discussed.
2. Optional Reading:
• “The Modern Firm: Organizational Design for Performance and Growth” by John Roberts, Oxford University
Press (2007). An excellent book for non-technical background reading.
• “Economics and Management of Organizations”, by George Hendrikse, McGrawHill (2003)
• “Firms, Contracts and Financial Structure” Oliver Hart, OUP (1995)

Course Schedule on Next Page..

LECTURE# TOPIC(S) READING
Module 0: COURSE INTRODUCTION
1&2 -Course outline Chapter 1 EOM, Course Outline
-Does Organization matter? A few real-life cases
-A survey of different approaches to study organizations
-A few words on Economics, Business Management, and this course
3 -Summary of some empirical studies on management practices and “Measuring and Explaining Management Practices Across
organization Firms and Industries” Nicholas Bloom and John Van
Reenen, Quarterly Journal of Economics (2007)
‘‘Why Do Management Practices Differ across Firms and
Countries?’’ Nicholas Bloom and John Van Reenen, Journal
of Economic Perspectives, (2010)
“Why Do Firms in Developing Countries Have Low
Productivity?” Nicholas Bloom, Aprajit Mahajan, David
McKenzie, John Roberts, American Economic Review, (2010)
Module 1: COORDINATION: MANAGEMENT VS. MARKETS
4 Markets & Prices for Coordination and Motivation – the Chapter 3 EOM
neoclassical general equilibrium benchmark. Review: First
Fundamental Theorem of Economics
5, 6, 7 “Management and Hierarchies” for Coordination, variety of Chapter 4 EOM, Additional readings (TBA) on strategy &
coordination problems, centralization vs decentralization, structure, core competence, dynamic capabilities.
complementarities, core competence, firm capabilities, introduction to Handout on Systems, Complementarities and Organization
strategy & structure
Module 2: MOTIVATION: CONTRACTS, INFORMATION, AND INCENTIVES
10 Moral Hazard & Performance Incentives: Basic Structure of the Chapter 6 EOM
problem and solutions – a basic model. Case Study: Hart, Oliver. 1995. “Corporate Governance:
Some Theory and Implications” Economic Journal – A
Classic
13, 14, 15 Risk Sharing & Incentive Contracts – a comprehensive model (Using Chapter 7 EOM
Employment and Venture Capital Contracts)
MIDTERM EXAM
16 Efficiency Wages, Corporate Culture Chapter 8 EOM, Handout
17 Economics of Ownership & Property Rights Chapter 9 EOM, Handout
Case Study: Shleifer, Andrei. 1998. “State versus Private
Ownership.” Journal of Economic Perspectives – Another
classic
Module 3: FINANCE: INVESTMENTS, CAPITAL STRUCTURE, AND CORPORATE CONTROL
18, 19 Economic vs. Accounting profit, ‘Economics, Value and Strategy’ Chapter 14 EOM, Handout
“Perfect world” benchmark models of Investments and Financing.
Implications for Organization and Management.
20, 21 “Real or imperfect world” models of Financing. Economics of Chapter 15 EOM, Additional Readings TBA
Corporate Control. Case Study: Corporate Control in Pakistan
STUDENTS’ GROUPS PRESENTATIONS
22 The Boundaries and Structure of the Firm Chapter 16 EOM
“The Boundaries of the Firm Revisited”, Holmstrom and
Roberts, Journal of Economic Perspectives, 1998.
23, 24 Information & Communications Technologies and Firm Structure ‘‘Technology, Information, and the Decentralization of the
Firm,’’Acemoglu, Daron, Philippe Aghion, Claire Lelarge,
John Van Reenen, and Fabrizio Zilibotti, Quarterly Journal of
Economics, 122 (2007).
‘‘The Distinct Effects of Information Technology and
Communication Technology on Firm Organization,’’
Bloom, Nicholas, Luis Garicano, Raffaella Sadun, and John
Van Reenen, Harvard Business School Working Paper Series
11-023, 2010.
25 Business & Economic Systems Chapter 17 EOM, Hall & Soskice “Varieties of Capitalism”
26 Organization of Creative Industries, Banks, and Financing for Caves, Richard, “Contracts between Arts and Commerce”
Innovation 2003, JEP
Kaplan and Stormberg, “Financial Contacting: Theory meets
the real world”, 2000, Review of Financial Studies
27, 28 Course Revision