1. Overview for exam
Institutional Economics and Economic
Organization Theory (IE&EOT)
19 April 2012

2. The field of IE&EOT
Values
Norms
Formal institutions Informal institutions
Governance structures

3. The field of IE&EOT
• Four approaches: approach
Static Dynamic approach
Efficiency 1. Treats the Institutional 1. Deals with institutional
environment as given change
2. What is the optimal /
most efficient 2. How do institutions
governance structure? change if actors have an
efficiency perspective?
Vested interest 1. Treats the Institutional 1. Deals with institutional
environment as given change
2. Governance structures
are explained as the 2. How do institutions
result of power play and change when vested
the protection of vested interests are taken into
interests account?

4. What are the main sources of information for review?
• Textbook
• Power Point Presentations from Lectures
• Class Notes
• Practicals:
• Background Readings
• Q&A

5. About the Exam
• What are you allowed to bring to the exam?
• Calculator (but not the scientific type)
• Dictionary (clean)
• What is NOT allowed:
• Mobile phone
• Any course materials
• Exam format:
• REMARK: the example of a previous exam that you can find under
‘course information’ uses the old exam format (6 questions)
• 4 questions (divided in sub-questions) – 2 questions chosen by
each of the lecturers
• One answer sheet per question

6. Types of Exam Questions
• 1. Short responses with definitions
• 2. Problem solving with calculations
• 3. Applied thinking to a scenario
• 4. Applied thinking to a short text (similar to assignments)

7. Short responses with definitions
• Institutions
a. What does the term ‘institutional environment’ mean?
b. What are governance structures?
c. What are the two polar cases of the spectrum of governance
structures?
d. Which are the three main types of governance structures?
Please give an example of each.

8. Problem solving with calculations
Worker 1 Worker 2
Output (in kg) Output (in kg)
Effort: No effort Effort = 250 € No effort Effort = 250 €
Probability:
0.1 500 100 1000 300
0.3 300 300 500 500
0.6 100 500 300 1000
Consider a firm that employs two types of workers. The expected
output that each worker type can achieve (depending on their effort
level) is given in the table below. Both workers are rewarded 1 € per
kg output produced (i.e. if a worker produces 500 kg, the payment will
be 500 €).
•Verify if the incentive compatibility constraint is satisfied for worker 1.
•Verify if the incentive compatibility constraint is satisfied for worker 2

9. Applied thinking to a scenario
• Assume a lake that is a popular spot for sports fishers in
summer. The local authority has recently approved the
establishment of a fish farm in the middle of the lake. The
sports fishers stay on shore so the fish farm does not prevent
them from continuing their activities. However, after a while it
becomes clear that the waste of the fish farm is negatively
affecting the habitat of the native lake fish species and their
numbers are deteriorating.
• Given your knowledge of the Coase Theorem (and assuming that
the assumptions of the Theorem hold), what would you suggest to
the local authority to solve this problem. Use the specifics of the
example in your answer.

10. Applied thinking to a short text
• Very similar to the format of the weekly assignments
• A 1-2 page background reading will be provided
• You will be asked to apply your knowledge gained in the course
through a number of short questions related to the background
reading

11. Student evaluations
• Invitations to fill out the course evaluations will be in your
mailbox today.
• This is your opportunity to signal what you like or don’t like
about this course.
• Please fill in the evaluation. We value your opinion.

12. Questions?