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2010/2011  KAN-FSM_FS57  Theory of the Firm

English Title
Theory of the Firm

Course Information

Language English
Point 7,5 ECTS (225 SAT)
Type Mandatory
Level Full Degree Master
Duration One Semester
Course Period Autumn
Time Table Please see course schedule at e-Campus
Study Board
Study Board for MSc in Economics and Business Administration
Course Coordinator
Nicolai FossStefan Linder
Main Category of the Course
  • Globalization, International Business, markets and studies
Last updated on 29 maj 2012
Learning Objectives
The course provides an introduction to the modern microeconomics of firm organization. It surveys central concepts such as asymmetric information, efficiency, incentive conflicts, property rights, 
specific assets, etc., and show how these in a game theoretic setting constitute the building blocks of an economic approach to organizations. The course surveys principal-agent theory, transaction cost economics and property rights theory, and develops business applications of these theories. As 
such the course provides students with a fundamental toolbox to analyze issues of fundamental importance to business strategy (how should the firm compete in a given market?), corporate strategy (which markets should the firm compete in?), and, in particular, organizational 
strategy (how should the organization be designed to serve strategic ends?). Among the issues that are analyzed are the make or buy decision, internal organization, low and high powered performance incentives, optimal patterns of ownership, and hybrid arrangements (such as 
Exam Period October and December/January
Two (graded) essays. The exam is internal and will be graded by a teacher alone, cf. General Degree Regulation § 25, S. (1) no.1. The exam will take place in October and November 2010. Make-up/ re-exam takes place in January/February 2010
Prerequisites for Attending the Exam
Course Content

Fundamental game theoretic notions (strategies, normal and extensive form games, Nash equilibrium, subgame perfection), the meaning of efficiency, the Coase theorem, general equilibrium, problems of delegation: principal-agent theory, transaction cost economics, 
self-enforcing contracts, ownership, bounded rationality and organizational decision-making.

Course status
This is a course on organizational economics that complements or even provide the foundation for many discussions and insights applied in strategic management, corporate finance, and corporate governance.

Teaching Methods

George Hendrikse (2003). Economics and Management of Organizations. McGraw-Hill.
Plus a small collection of classic papers on organizational economics.