ECO-3107 Organizational Economics

Monsoon 2023
Course instructor: Dr. Ayush Pant
Email: A.Pant@warwick.ac.uk

“When intuition and logic agree, you are always right.” — Blaise Pascal

The course introduces the world of organizations observed through an economist’s

lens. This advanced course can also be seen as an introduction to strategic decision-
making in the real-world setting of organizations. We will study relevant topics through
theoretical and empirical research papers. These topics include understanding why
firms exist, contractual relationships, authority and leadership, and discrimination. The
objective is to familiarize you with theoretical approaches, guide you to the research
frontier in selected topics, and let you explore open and exciting research questions,
both theoretical, empirical, and experimental.
The principal learning objectives of the course are as follows:

1. To develop and deepen the understanding of how the internal organization of firms
works.

2. To understand how to apply economic logic and intuition to understand real-world

situations and build logic-driven problem-solving skills.

3. To appreciate how economists can contribute to the understanding of the real-world

through applied research, both theoretical and empirical.

Please keep this document handy and read it thoroughly.

Drop-by sessions: TBA

Course outline
Week 1-2: A refresher course in game theory. Static and dynamic games of
incomplete information; Bayes-Nash and Perfect Bayesian equilibrium

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 • Knowledge of complete information games and the associated solution concepts of
Nash and Subgame Perfect equilibrium is necessary. Kindly do not opt for this
course if you are not confident with them. I will assume these concepts as common
knowledge from the beginning.
Week 3-4: Boundaries of the firm 1. What constitutes a firm; Property rights and
transaction cost theories of the firm
• Gorton, Gary B. and Alexander Zentefis. 2020. Corporate Culture as a Theory of
the Firm. NBER Working Paper No. w27353.
Week 5-6: Boundaries of the firm 2. Incentive theory of the firm; formal employment
relations in organizations; single-party, multi-party, and multitask moral hazard
• Case Study 1
Week 7-9: Decision-making within organizations. Different modes of communica-
tion: cheap talk, lobbying, signaling, disclosure, and information design
• Caillaud, Bernard, and Jean Tirole. 2007. Consensus Building: How to Persuade
a Group. American Economic Review 97: 1877-1900.

• Case Study 2
Weeks 10-12: Authority, delegation, and leadership in organizations.
• Aghion, Philippe, and Jean Tirole. 1997. Formal and real authority in organiza-
tions. Journal of Political Economy

• Bandeira, Oriana, Michel Carlos Best, Adnan Qadir Khan, and Andrea Prat. 2021.
The allocation of authority in organizations: A field experiment with bureaucrats.
NBER

• Benabou, Roland, and Jean Tirole. 2003. Intrinsic and extrinsic motivation.
Review of Economic Studies.

• Colonnelli, Emanuele, Valdemar Pinho Neto and Edoardo Teso. 2022. Politics
at Work. The University of Chicago, Becker Friedman Institute for Economics
Working Paper No. 2022-86.

• Spenkuch, Jorg L., Edoardo Teso, and Guo Xu. 2021. Ideology and performance
in public organizations. National Bureau of Economic Research Working Paper
No. w28673.

• Case Study 3

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Textbooks
Much of the teaching during the lectures will be through a combination of live model-
solving, lecture notes, and the papers to be presented. The lecture notes will draw on
numerous texts. For this reason, I do not recommend any textbook for such an advanced
course. Ideally, attending the lectures and taking regular notes should suffice. If you
want to take a look at other texts, I suggest the following:

• Osborne, M. J., & Rubinstein, A. (1994). A course in game theory. MIT Press.

• Laffont, J. J., & Martimort, D. (2009). The theory of incentives. Princeton

University Press.

For those genuinely interested in the course, please start to regularly read Harvard
Business Review, MIT Sloan Management Review, Inc.com or the Business Insider.

Grading rubric
1. Assignments (5 + 10*3 = 35 points)

• Assignment 1: Logical problem-solving questions (with short-answer inter-

pretation and conclusion derivation type questions) on game theory to test
your level of preparedness
• Assignment 2: Logical problem-solving questions (with short-answer inter-
pretation and conclusion derivation type questions) on Boundaries 1
• Assignment 3: Logical problem-solving (with short-answer interpretation and
conclusion derivation type questions) on Decision-making
• Assignment 4: Referee report on a given paper
• All assignments must be done in either pairs or groups of three (depending
on how many students sign up). All students in the same group will receive
the same score.
• You would get a week to ten days to work on and submit your assignments.
Please submit only one hard copy of your assignment per group. Everyone
should mark the assignment as “done” on GC.
• You may visit your TF (if allocated) for any clarifications after they return
the marked problem sets. This depends on their availability. Please note that
no formal solutions will be provided for the assignments.

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2. Two in-class case studies (5*2 = 10 points)

• The case study will deal with a real-world organizational conflict, and, as
an expert, you will be required to solve it. Naturally, it would involve some
concepts we studied in the lectures. But it would also demand some lateral
thinking.
• I will circulate the case study one to two days in advance so that you can
read through it and attempt it with your group members during the lecture.
Please note that if your group members do not show up, I cannot do much
about it.
• The first case study will act as practice for the latter two.

3. In-class presentations (7+3 = 10 points)

Each group will be allocated a paper from the above list that they must present.
You must begin by thoroughly reading and understanding the paper. Then, you
have to find a creative way to communicate the key question, the result, the
contribution, and the intuition of the paper to your peers.
You may choose any way to present the paper: a collection of Insta reels, a live
play, a rap or any other musical piece, a video presentation with some storyline,
a “news” piece, . . .. Naturally, this technique should be mixed with some more
traditional methods. Ideally, the “story” and question of the paper should be
communicated creatively, while the intuition and the nitty-gritty should be in a
conventional manner.
You will be graded on your grasp of the concepts discussed in the paper, your
ability to answer questions, your creativity, and how successfully you’ve taught
the paper. However, do not fret if you do not understand and discuss everything
in the paper – in fact, you do not have to. I am always there to assist you.
It is also equally important to contribute to others’ presentations. For this reason,
read through the papers at least once before coming to the lectures. Thus, 3 points
are reserved for how you contribute to your colleagues’ presentation.
Note: I may add more papers to the reading list in the final course outline,
depending on the number of students signing up.

4. TLAE 2.0 (5 + 5 + 5 + 25 = 40 points)

If you have been my student before, you know about the Think-like-an-economist
or the TLAE project. The TLAE 2.0 is like the TLAE project, but this time on

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 steroids. Here, you are tasked with coming up with an original idea in organiza-
tional economics.
Initially, I will present you with two to three prompts, based on which I expect you
to start reading and exploring ideas. As part of the project, you have to schedule
two meetings with me to discuss how your idea is developing and take feedback.

• Each meeting is worth 5 points.

• Every 5 points is split into 2 points for making it to the meeting before the
deadline (and respecting your timeline) and 3 points for how well-prepared
you are to hold a meaningful discussion.
• Deadline for the first meeting: Before the mid-semester break
• Deadline for the second meeting: Within the two weeks following the mid-
semester break

Another 5 points are reserved for holding a third group discussion session on your
idea during the Idea Incubation Session. This session will be held towards the
end of the semester at the Shuddh Desi Dhaba where we will meet for lunch and
discuss your ideas in a group.
The written research proposal is worth 25 points. Ultimately, you will be graded
on the following criteria:

• applicability of your question,

• how well formulated is the question,
• have you identified the key tradeoff,
• what is the final result you seek, and
• literature review — has the question been explored before?

Finally, communication of your ideas is as important, if not more. Communication

includes how convincingly you write your proposal. Excellent ideas can be destroyed
entirely if nobody understands your message.
The research proposal is an independent exercise, not a group one. The deadline
for submitting your research proposal is the last Saturday of the term.

5. Attendance (5 points)
Please see the attendance policy below.

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 6. Extra credit (5 points)
The extra credit is meant to reward students actively participating in the lectures.
Class participation is highly crucial to the learning process. I will usually pose
numerous questions while delivering the lectures to give you an opportunity to
earn these points. These are primarily to test your presence in the lectures. In
addition, I urge you not to allow me to move forward with the course material
unless you have cleared your doubts — stop and ask me as many questions as
possible. Remember, there are no wrong questions or even wrong answers.

There is no relative marking in this course. However, if the overall class perfor-
mance is inadequate, I may increase your scores at the end of the term. All the students
will benefit from such a policy, and I will not allocate additional points relative to other
students. This exercise will be done transparently. I want you all to perform well, but I
also want to distinguish between students at different performance levels. Thus, I will
use all the grades the University prescribes. Please read this document to determine
your final adjusted score.
Finally, I want to emphasize that I take academic integrity extremely seriously. Any
cheating, plagiarism, or academic dishonesty will be taken very seriously. I am prepared
to take extreme punitive actions, such as an immediate failure and/or reporting to the
OAA, for any such incident.

Attendance policy
If twenty or more students sign-up, the attendance policy is as below.
You start with 5 points for lecture attendance at the beginning of the term. For
every lecture with attendance between 70% to 80%, you all lose 0.25 points. Similarly,
you all lose 0.5 points for every lecture with attendance between 60% to 70% and 1 point
for attendance between 50% to 60%. Lastly, if the attendance falls below 50%, you
will lose all 5 points. Thus, you can retain your 5 points only if the lecture attendance
remains above 80% consistently.
If fewer than twenty students sign-up, the same principles will be applied for individual
attendance, with percentages showing the fraction of lectures you attend.