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Econ 1620 - Lecture 2
 

Econ 1620 - Lecture 2

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    Econ 1620 - Lecture 2 Econ 1620 - Lecture 2 Presentation Transcript

    • Lecture II The Problem of Economic Organization
    • Economies
      • Efficient use of resources
        • Best use
          • Action Driven by efficiency
      • Transaction Costs
        • Coordination Costs
        • Motivation Costs
    • Coase
      • Background: Theory is an organizing principle for thought, research, discussion, common language…
      • It need be not “Correct or Incorrect”
      • Note Demsetz for Class 3
      • GROUP DISCUSSION OF COASE ARTICLE
      • Group 1-This article is interesting only as part of the history of Organizational Theory
    • Coase Discussion
      • Group 2-This article was important in its ‘time’, but is largely irrelevant today.
      • Group 3-This article is ‘cutting edge’ thinking with major implications and applications to management theory & practice today.
      • Group 4-This article provides an intellectual framework and explain how that framework might frame our discussions in this course.
      • Group 5-By not considering the concepts in this article, the theory and practice of management cannot be effectively undertaken.
      • Group 6-This article is misleading and express a contrary view that would be more appropriate for our discussions.
    • Coase (continued)
      • Outside The Firm – Price movements direct production – coordinated through a series of exchange transacti0ons on the “Market” (Explain sales at a financial loss)
      • Inside the Firm – The entrepreneur “coordinator” directs production by bringing into being a system of relationships (Efficient v. Market)
      • Essential for tolerance of complexity?
      • Focus on “Efficiency” as a motivating force
      • A firm as a conglomerate of contracts
        • Continuity – reduce complexity
    • A Conceptual Framework (Insight Into Markets and Organizations?) Division of Labor Specialization Coordination Organization Market Information
    • A Conceptual Framework (Continued)
      • Issues:
      • Price mechanism not sufficient to perform coordination function
      • Organizations are formed to resolve information problems
      • Technology facilities transparency of information – but individuals and organizations tend to hoard information for power and as a store of economic value (short life)
      • Can we understand outsourcing in this context – Has information flow given us new control options?
      • Efficient market is expected to allocate scarce resources
      • But: Do we need a more complex framework to understand valuation of and allocation of knowledge/information resources? (Intellectual Property, Communication and Analytical Tools, and Human Resources)
      • Any insights from behavioral finance?
      Markets
      • Not a pure economic problem – Sociology, Psychology, Management, Political Science, Anthropology and other disciplines provide insights and analytical tools.
      • Qualitative and Quantitative Analysis
      Markets (Continued)
      • Stagnation accelerated after 1950’s
      • Has technology reversed this?
      • Have we broken organizational gridlock?
      • Consider rise of small & fall of large organizations
      • Is group-work a solution? (anti-specialization)
      • Has outsourcing moved the organizational gridlock to geographic areas willing to accept the problem?
      The Pursuit of Productivity
      • Consider:
      • The industrial age, specialization and labor unions put restrictions on individual choice as they facilitated higher performance (output). Note: Unions look to regain ‘power’
      • The service economy offers opportunities for individual skills and initiative
        • Opportunity for controlling individual satisfaction (i.e. individual defines job/work)
      The Pursuit of Productivity (Continued)
      • Does this put the control of when and at what price goods and services will be exchanged in the hands of the knowledge worker? (Not unlike the historical craftsman)
      • Does the coordination problem take a primary significance?
        • Is industry responding with mass customization?
        • Does this lead to customer designed products and services?
          • - Dell - Unix -……(Autos, UPS.Parts
      The Pursuit of Productivity (Continued)
      • ORGANIZATIONS have used authority as a coordinating mechanism -- This becomes fuzzy as organization “stars” and “rain makers” are not the holders of authority on the organizational chart
      • MARKETS have used a price mechanism – This becomes fuzzy with emotional or other ‘motivational’ decisions
      Organizations
      • Dealer Markets – inventory
      • Auction Markets – match buyer/seller
      • Specialist/Market Maker – Hybrid
      • All serve purpose of moving asset from willing seller to willing buyer at an agreed price (value)
      • Multiple models (and Customized Modeling)
      • Can be practical and efficient
      • - Facilitated by technology
      Financial Markets as an Example of Complexity
    • What is Efficient Price for MBA ? Position Financial Analyst at Consulting Firm Fuzzy Job at .com with IPO Target -2 to 3 years Your own business model to deliver service value to new MBA’s (Social Enterprise) Compensation $100,000+ $50,000 + Options - 0 - Must raise capital Control Ownership