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2014/2015  KAN-CFSMO1123U  Theory of the Firm

English Title
Theory of the Firm

Course information
Language English
Course ECTS 7.5 ECTS
Type Mandatory
Level Full Degree Master
Duration One Semester
Course period Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Study board
Study Board for MSc in Economics and Business Administration
Course coordinator
  • Jacob Lyngsie - Department of Strategic Management and Globalization (SMG)
  • Nicolai J. Foss - Department of Strategic Management and Globalization (SMG)
Main academic disciplines
  • Globalization, International Business, markets and studies
Last updated on 04-07-2014
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
franchising).

The aim of the course is that students after having followed the course are able to:
  • Explain concepts covered by the main theories of economic organization/the firm.
  • Discus and contrast the concepts covered by the main theories of economic organization/the firm.
  • Apply the concepts, covered by the main theories of economic organization/the firm, on a real-life business case and based on the analysis, recommend a specific management decisions.
Examination
The exam in the subject consists of two parts:
Theory of the Firm:
Sub exam weight50%
Examination formHome assignment - written product
Individual or group examIndividual
Size of written productMax. 5 pages
Assignment typeEssay
Duration2 weeks to prepare
Grading scale7-step scale
Examiner(s)One internal examiner
Exam periodAutumn Term
Make-up exam/re-exam
Same examination form as the ordinary exam
Theory of the Firm:
Sub exam weight50%
Examination formHome assignment - written product
Individual or group examIndividual
Size of written productMax. 5 pages
Assignment typeEssay
Duration2 weeks to prepare
Grading scale7-step scale
Examiner(s)One internal examiner
Exam periodAutumn Term
Make-up exam/re-exam
Same examination form as the ordinary exam
Two essays (max. 5 pages per student) made individually. Each essays will count for 50% of the grade. The grade reflects an overall assessment of the two essays.
Course content and structure

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
Lectures with exercises.
Expected literature

George Hendrikse (2003). Economics and Management of Organizations. McGraw-Hill.
Plus a small collection of classic papers on organizational economics.
Last updated on 04-07-2014