Organizational economics examines how economic logic applies to transactions within firms and the costs and benefits of different organizational structures, compensation plans, and management decisions. It includes the study of transaction cost theory, agency theory, and contract theory. The Chicago School of Economics influenced organizational economics, particularly the work of George Stigler who developed the Economic Theory of Regulation which argues that interest groups will shape laws and regulations to their benefit, something known as regulatory capture. Public choice theory also informs organizational economics by using economic tools to analyze political behavior and interactions between self-interested political actors.

1. Organizational economics (also referred to as economics of organization) involves the use
of economic logic (i.e. D VS S) (i.e. applied economics)..
Organizational economics studies the transactions (theirobstacles i.e. sociology) that occur
within individual firms,
IT takesintoaccount the costs and benefits OFstructure, compensation, incentives, pay plans, risk
management policies, and management decisions.
IT examinesorganizational tasksof coordinationandmotivationof humanactivitiesinorganizations
IT playsan insignificantrole inthe evolutionof knowledge management
Organizational economics subfields:-
 Transaction cost theory: costs incurred to organize an activity, especially regarding research of
information, bureaucracy (LOBBYING), communication etc.
 Agency theory: dilemmas connected to making decisions on behalf of, or that impact, another
person or entity. CAN DELVE INTO MOTIVATION
 Contract theory/property rights: ways economic actors design RIGHT contracts, generally in the
presence of asymmetric information./LIMITIED RESOURCES (RESOURCE ALLOCATION)
Imp for HRM ---
determining how a firm should be organized, assessing business risk, implementing rewards
systems and making, analyzing and improving management decisions.
Chicago School of Economics.-- neoclassical economic school of thought
George Joseph Stigler a key leader of the Chicago School of Economics.
Stigler is best known for developing the Economic Theory of Regulation, which says that interest
groups and other political participants will use the regulatory and coercive powers of government to
shape laws and regulations in a way that is beneficial to them.
One idea behind regulation was that non budgetary distribution of income by protecting the
profits of vulnerable/mass people i.e alternative to public finance.
Also known as Regulatory capture is a form of government failure which occurs when a regulatory
agency, created to act in the public interest, instead advances the commercial or political concerns
of special interest groups that dominate the industry or sector it is charged with regulating.
Government agencies suffering regulatory capture are called "captured agencies".

2. Sighting this advocates of economics of regulation threory; economists are critical of
conceptualizations of governmental regulatory intervention as being motivated to protect public
good. A captured regulatory agency is often worse than no regulation
Rational choice theory :- spend resources on a body rather than competing in the market. Many
times by Non-materialist capture, also called cognitive capture or cultural capture, in which the
regulator begins to think like the regulated industry. Eg lobbying circles
regulatory capture vs regulatory public interest theory,
Quoates:-
A rational man must be guided by the incentive system within which he operates. No matter what his
own personal desires, he must be discouraged from certain activities if they carry penalties and
attracted toward others if they carry large rewards. The carrot and the stick guide scientists and
politicians as well as donkeys.
Economists are neither distinctively good nor bad, no more or less virtuous or brave or generous or
faithful than the sum of mankind, and certainly no more modest.
"The economics of information." Article in the The journal of political economy - check crux
One should hardly have to tell academicians that information (i.e. is the result of processing,
manipulating and organizing data in a way that adds to the knowledge of the person receiving it. ) is
a valuable resource: knowledge is power. And yet this occupies a slum dwelling in the town
of economics. Mostly it is ignored.
He questioned fiiciency narrative of govt, questied the economist as a brand, died with the end of
communisim in the world , today again being relevant with probs of deregulation.Economics or
Ethics
Public choice theory employs the tools of economics to explain real-world political
behaviour. In particular, it seeks to examine politicians as individuals guided by their
own selfish interests — rather than as benevolent promoters of the common good
Studies self-interested agents(voters, politicians, bureaucrats) and their interactions, which can be
STUDIED IN mathematical approach to aggregation of individual interests, welfares, or votes.
POLITICO SOCIO ECONOMY OF NEXUS & FEUDAL ORDER N/WS

3. Eg of public choice theory
Game theory
It is a framework(mathematical models) against hypothetical social situations (MAINLY
CONFLICT AND cooperation) & behavioral relations i.e, science of strategy, around optimal
decision-making(ought to be) of independent and competing actors.
Evolutionary still --- applications, including psychology, evolutionary biology, war,
politics, economics, and business.& turned attention away from equilibrium
based market processes
Imp - contribution handle imperfect competition & understanding entrepreneurial
anticipation
Stigler's view of policy advice(regulator) being irrelevant because political markets are efficient.