Economics of Strategy and Organization» (ESO) - Ebap

EBAPE MSc & Ph.D. Winter Short Courses
Research Seminar - Syllabus
«Economics of Strategy and Organization» (ESO)
15-19th of July 2013
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Professor: Bertrand Quélin, HEC Paris
Schedule: July - 15 hours (see schedule)
Teaching language: English
Web site: https://studies2.hec.fr/quelin
Adm. Assistant: Adriana C.V. Carneiro - Tel.: (55 21) 3799·5719
Office hours: on appointment - e-mail: quelin@hec.fr
© Bertrand Quélin (HEC Paris) - EBAPE MSc & Ph.D. Winter Short Courses - Economics of Strategy and Organization (ESO) 1
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Positioning of the MSc and Ph.D. seminar
Few years ago, the economics of organization arose in response to perceived limitations in the
neoclassical economics (price and information mechanisms, equilibrium, signaling…). Since major
contributors won Nobel Prize in economics (Prof. R. Coase in 1991, Prof. D. North in 1993, and Prof. E.
Ostrom and Prof. O.E. Williamson in 2009).
This research seminar covers some prominent economic theories of the firm and organizations related to
strategic management and business administration. It is entirely devoted to the assessment of five different
economic theories that are interested in the strategy of firm as well organizational forms. The firm is not a
stand-alone entity but is to be examined in relation to the market and other modes of organizing economic
activities (e.g., franchising, alliances, partnerships, NGO, associations and network).
Objectives
This seminar is intended to bring to the MSc and Ph.D. students' advanced knowledge in the economics
of strategy and organization (ESO), whatever their background and their specialization. It is also devoted to
the most recent theoretical issues. It points to the research tasks in management in overall (marketing,
human resources, finance, strategic management, and accounting and operation management).
This seminar covers dimensions which one finds in the modern economic analysis of the firm like the
coordination between agents, delegation and authority, vertical integration and hybrid forms of organization,
contracts and competences.
The theories are approached through their theoretical background, and the authors, concepts and
analytical categories and tools. The seminar is about the internal coherence of each field or theory. The
assessment of each theory is also undertaken in order to offer consequent control of analytical tools. This is
done for understanding well the different cornerstones of each selected economic theory of the firm.
The selected theories that have taken shape over the past 40 years have vastly expanded the research
agenda in both economic theory and organization theory as well as in management. This seminar is also
interested in the way through the contributions of the studied economic theories are integrated into the most
recent research in management.
Pedagogy
Teaching is organized around the critical presentation of selected theories and the thought of the authors.
The preliminary reading by students of articles representative of the main topics is mandate. Two articles

have to be read and studied in advance for each session. A complementary bibliography is provided to
deepen (not mandatory).
Each session is organized around an internal analysis of the coherence of the theory, assumptions,
hypotheses and contribution of each theory to both economics and management. Teaching is thus based on
critical discussion of works, analysis of articles and research tasks. In complement, the seminar is devoted to
the development of the economic theories of the firm and organizations and, with the assessment of their
potential contribution to research in management.
Organization and Frame of the seminar
Each session will follow the below format (break included):
- Student presentation (30 mn):
Two students' presentations for each session, limited to 10 minutes each one, will introduce
and analyze the two articles selected for the class; one student will ensure a discussion of one
article (10 mn each);
These two presentations, in didactic matter, will be followed by Q&A and discussion; this
general discussion of the two articles will be limited to 10 minutes.
- Analysis (120 mn): each seminar will be then devoted to a deep analysis to understand internal
coherence and the contributions of the studied theory; this analysis developed by the professor will be
limited to 1 hour.
- New trends and further developments (30 mn): the last half hour will be devoted to the recent
developments of the theory, the bonds with problems and questions of research anchored in
management, with a specific focus on strategy; it will rest on an interaction and exchanges on the
problems being able to mobilize such or such part of the studied economic theory.
Grading
The grades will be:
o Student presentation: 30%
o Oral participation: 20%
o Final written work (term paper): 50%
1. The evaluation of the student’s presentations will rest on the clearness of the oral presentation and
the capacity to answer the questions.
It requires the preliminary handing-over of a hard copy of the notes or transparencies (to be sent by email
to quelin@hec.fr the day before 10:00 p.m.).
2. The oral participation will take account of the relevance of lightings, analysis and standpoint
representing a thorough reading of the two texts subjected for the preparation of the meeting.
3. The term paper will consist of a work of drafting of an analysis relating to an economic topic chosen
by the professor in accordance with each student.
This term paper will have to be structured in the following way: after the discussion and comparison of
topics and analyses supported by the authors (a third to half of the term paper), the term paper will have to
necessarily stress the analysis of the issues offered by the economic literature and the development for new
tracks for research in management (half to two thirds).
For this purpose, a rigorous step is necessary resulting writing proposals for a research project and in
proposing an adequate framework to examine them (half to two thirds of written work).
The evaluation of the written work will concern the demonstration of a good and comprehensive
understanding of the mobilized articles and the quality of the developed prospects for research.
This written work will have to be given to more at the end of August 2013 (no later).
© Bertrand Quélin (HEC Paris) - EBAPE MSc & Ph.D. Winter Short Courses - Economics of Strategy and Organization (ESO) 2

Main Topics & Classes (5)
Session #1 – Theory of Property Rights
Law and economy: Is the definition of the Property Rights possible
Sharing the value created in the organizations and through the contracts,
Team production and information costs,
The functions of contracting and taking risk,
Difficulties of metering outputs and monitoring workers,
Property Rights and the institutional environment (Internet, free access, and wiki-world).
Session #1 - Articles to be read and prepared
- Armen A. ALCHIAN & Harold DEMSETZ (1972), “Production, Information Costs, and Economic
Organization”, American Economic Review, 62(5): 777-795.
- Oliver HART & John MOORE (1990), “Property Rights and the Nature of the Firm”, Journal of Political
Economy, 98(6): 1119-1158.
Complementary readings (not mandatory):
> Field, B.C. (1989), “The evolution of property rights”, Kyklos, 42(3): 319-345.
> Anderson, T.L. & Hill B.C. (1990), “The race for property rights”, J. of Law & Economics, 33.
> Barzel, Y. (1997), Economic analysis of property rights, Cambridge U.P., 2 nd edition.
*****
Session #2 - Agency Theories: delegation and monitoring
Managerial behavior and Agency costs,
Normative approach and positive approach,
Training of the teams and the division of the income: fixed payment and residual claims,
The question of the monitoring and the evaluation of the efforts,
Costs of monitoring and motivating agents,
Compromise design of the firm and the risk,
Renewal of the Agency Theory (Corporate governance, governance of networks and communities,
multiple principals…).
Session #2 - Articles to be read and prepared
- Michael J. JENSEN & William H. MECKLING (1976), “Theory of the Firm: Managerial Behavior,
Agency Costs and Ownership Structure”, Journal of Financial Economics, 3(4): 305-360.
- Eugene F. FAMA & Michael C. JENSEN (1983), “Agency Problems and Residual Claims”, Journal of
Law & Economics, XXVI, 1-29.
Complementary readings (not mandatory):
> Fama, E.F. (1980), “Agency problems and the theory of the firm”, Journal of Political Economy,
88(2): 288-307.
> Fama, E.F., & M.C. Jensen (1983), “Agency problems and residual claims”, Journal of Law and
Economics, 26, 327-350.
> Eisenhardt, K.M. (1989), “Agency theory: an assessment”, Academy of Management Review,
14(1): 57-74.
> Harold Demsetz (2008), “Frischmann’s View of “Toward a Theory of Property Rights””, Review
of Law and Economics, 4(1): 128-132.
> Sanford J. GROSSMAN & Oliver D. HART (1986), “The Costs and Benefits of Ownership: A
Theory of Vertical and Lateral Integration”, Journal of Political Economy, 94(4): 691-719.
> Oliver Hart & John Moore (1990), "Property Rights and the Nature of the Firm", Journal of
Political Economy, 98(6): 1119-1158.
© Bertrand Quélin (HEC Paris) - EBAPE MSc & Ph.D. Winter Short Courses - Economics of Strategy and Organization (ESO) 3

Benjamin KLEIN & Keith B. LEFFLER (1981), “The Role of Market Forces in Assuring
Contractual Performance”, Journal of Political Economy, 89(4): 615-641.
*****
Session #3 - Frontiers of the firm and Transaction Cost Economics: the approaches of R. Coase and
O.E. Williamson
Explaining the existence and scope of the firm,
Firm as a consequence of the costs of market transactions,
Market and organization: the Market/Hierarchy dichotomy,
Determining the governance: ownership and direction, forms of organization,
Attributes of the transactions,
Vertical integration and hybrid organizational forms,
Incentives and coordination: Holdup and opportunism of the agents,
Organizational arrangements and institutional environment,
Authority in the firm and Bureaucratic costs,
Limits of the efficiency of the organizations,
Is the Transaction Cost Economics useful for management
Session #3 - Articles to be read and prepared
- Oliver E. WILLIAMSON (1981), “The Modern Corporation: Origins, Evolution, Attributes”, Journal of
Economic Literature, 19(4): 1537-1568.
- Oliver E. WILLIAMSON (1991), “Comparative Economic Organization: The Analysis of Discrete
Structural Alternatives”, Administrative Science Quarterly, 36(2): 269-296.
Complementary readings (not mandatory):
> Ronald H. COASE (1937), “The Nature of the Firm”, Economica, 4(16): 386-405.
> COASE R. (1972), “Industrial Organization: A proposal for Research”. In Fuchs V.R., Ed., Policy
Issues and Research Opportunities in Industrial Organization. NBER, New York.
> Oliver E. WILLIAMSON (1989), “Transaction Cost Economics” in R. Schmalensee and R. D.
Willig (eds.), Handbook of Industrial Organization, Elsevier Publishers, 1 Chap. 3, 135-182.
> Williamson, O.E. (1991), "Strategizing, economizing, and economic organization", Strategic
Management Journal, 12, pp.75-94.
> Simon, H. (1991), “Organizations and markets”, Journal of Econ. Perspectives, 5(2), pp.25-44.
*****
Session #4 - Private Costs, Social Costs and Transaction Costs: The Coase Theorem
Market and firm: their respective functions,
Private costs, social costs: the theorem of Coase,
Property Rights as basis of the exchange,
The tragedy of commons,
Genesis of the regulation and creation of new markets (public goods, NGO),
Social costs and common pool.
Session #4 - Articles to be read and prepared
- Ronald H. COASE (1960), “The Problem of Social Cost”, Journal of Law and Economics, 3, 1-44.
- Fred S. McChesney (2006), “Coase, Demsetz and the unending externality debate”, Cato Journal, 26(1)
(Winter).
Complementary readings (not mandatory):
© Bertrand Quélin (HEC Paris) - EBAPE MSc & Ph.D. Winter Short Courses - Economics of Strategy and Organization (ESO) 4

Granovetter, M. (1999), “Coase encounters and formal models: Taking Gibbons seriously”,
Administrative Science Quarterly, 44: 158-162.
> Madhok, A. (2002), “Reassessing the fundamentals and beyond: Ronald Coase, the transaction
cost and Resource-based theories of the firm and the institutional structure of production”, Strategic
Management Journal, 23: 535–550.
> Elodie Bertrand (2006): “The Coasean analysis of lighthouse financing: myths and realities”,
Cambridge Journal of Economics, 30, 389–402.
*****
Session #5 – New Institutional Economics and Sustainable Growth
Institutional environment and private contracts,
The transactional sector and the "visible hand",
The incompleteness of contracts and their opposable character with the common right,
Transactions and economic development: privatizations, regulations,
Economic growth and institutions.
Session #5 - Articles to be read and prepared
- Douglass C. NORTH (1991), “Institutions”, Journal of Economic Perspectives, 5(1), 97-112.
- Avner Greif, Paul Milgrom, and Barry R. Weingast (1994), “Coordination, Commitment, and
Enforcement: The Case of the Merchant Guild”, Journal of Political Economy, 102(4): 745-776.
Complementary readings (not mandatory):
> North D. (1981), “Structure and Performance: The Task of Economic History”, Journal of
Economic Literature, 16, p. 963-978.
> North, D.C., & Weingast, B.R. (1989), “Constitutions and commitment: The evolution of
institutions governing public choice in seventeenth-century England”, Journal of Economic History.
44(4): 803-832.
> North, D.C. (1990). Institutions, Institutional change and Economic performance. Cambridge,
MA: Cambridge University Press.
> Douglass C. NORTH (1990), “Informal Constraints”, Institutions, Institutional Change and
Economic Performance, Cambridge University Press, 36-60.
> Levy, P., & Spiller, P.T. (1996). Regulations, Institutions, and Commitment. Cambridge, MA:
Cambridge University Press.
*****
Textbook
- Mahoney, J.T. (2005), Economic Foundations of Strategy - Sage Publications.
Recommended Complementary Readings
- Brousseau, E. & Glachant J.M. (2002), The Economics of Contract – Cambridge University Press.
- Brousseau, E. & Glachant J.M. (2008), New Institutional Economics – Cambridge University Press.
- Buckley, P.J. & Michie, J. (1996), Firms, Organizations and Contracts: A Reader in Industrial
Organization (Oxford Management Readers) – Oxford University Press.
- Milgrom, P. & Roberts J. (1992), Economics, Organization and Management - Prentice Hall Business
Publishing. Trad. Fr.: Economie, Organisation et Management – PUG/De Boeck (1997).
- Putterman, L. (ed.) (1986), The Economic Nature of the Firm: A Reader – Cambridge University Press.
Schedule
Prof. Bertrand Quélin - The Economics of Strategy and Organization
July 15th to 19th: 9:00 to 12:00 AM
FGV – EBAPE – Rio de Janeiro
© Bertrand Quélin (HEC Paris) - EBAPE MSc & Ph.D. Winter Short Courses - Economics of Strategy and Organization (ESO) 5