EC335: Managerial Economics

Isleide Zissimos
Module Leader

15 CATS - Department of Economics

Introduction

This module introduces students to managerial economics with a particular emphasis on personnel and organisational decision making. Using the tools of economic analysis and principal agent theory, the module examines how firms design incentives, contracts, monitoring systems, and organisational structures to motivate workers and improve performance.

The module combines formal economic models with empirical and behavioural insights to analyse topics such as performance pay, recruitment, executive compensation, workplace competition, entrepreneurship, and team production. Throughout, students apply economic reasoning to understand how firms can address problems arising from incomplete information, conflicting incentives, and organisational complexity.

Principal Aims

Aimed at business and joint degree students of Economics seeking to understand how economic theories of incentives, information, and strategic interaction apply to practical managerial situations, with particular emphasis on personnel and organisational decision making. The module examines the central problems managers face in motivating, rewarding, and managing workers, and provides the economic analysis needed to evaluate and guide these decisions.

Principal Learning Outcomes

Subject knowledge and understanding:…understand key concepts in Managerial Economics, such as market structures, game theory, imperfect information, principal-agent problems.

Subject knowledge and understanding:…demonstrate knowledge of economic trends, institutions and policies, especially in the context of business and industry-related problems and issues.

Subject knowledge and understanding:…abstract and simplify basic economic problems through the application of simple theoretical models.

Key Skills:…communicate knowledge and understanding of economics in written, graphical and in appropriate mathematical forms.

Cognitive Skills:…analyse competing models and hypotheses in a critical way.

Cognitive Skills:…analyse and formulate models for understanding and solving problems.

Subject-Specific/Professional Skills:…select and apply appropriate economic models and techniques to particular problems especially relating to business and industry.

Syllabus

1. Incentives and the Principal-Agent Problem: (a) Introduction to Personnel Economics and Managerial Decision Making. (b) The Principal-Agent Model, Effort Choice, Incentive Sensitivity, and Contract Design. (c) Efficiency, Distribution, and Optimal Contracts under Risk and Uncertainty.

2. Monitoring, Motivation, and Performance: (a) Monitoring Technologies, Shirking, and Performance Measurement. (b) Performance Pay and Empirical Evidence on Productivity. (c) Intrinsic Motivation, Trust, Reciprocity, and the Hidden Costs of Control.

3. Recruitment, Training, and Career Incentives: (a) Recruitment, Screening, and Self-Selection. (b) Firm Specific Training, Hiring Practices, and the Hold-Up Problem. (c) Performance Evaluation, Rewards, and the Ratchet Effect.

4. Executive Incentives and Workplace Competition: (a) CEOs, Executive Compensation, Bonuses, and Entrepreneurship. (b) Tournament Theory, Workplace Competition, Wage Inequality, and Risk Taking.

5. Teams and Organisational Behaviour: (a) Team Production, Incentives, and Free Riding. (b) Profit Sharing, Heterogeneity, and Team Contracts. (c) Peer Pressure, Altruistic Punishment, and Co-operation in Organisations.

Context

Optional Module

NN35 - Year 3, N140 - Year 3, N1R2 - Year 4, N1RA - Year 4, NN36 - Year 4, N220 - Year 3, N1RB - Year 4, N1RC - Year 4, L1L8 - Year 3, V7ML - Year 3, V7MM - Year 4, L1CA - Year 3, L1CB - Year 4, R1L5 - Year 3, R2L5 - Year 3, R3L4 - Year 4, R4L1 - Year 4, LA99 - Year 3, Y602 - Year 3, GL11 - Year 3, GL12 - Year 4, MN31 - Year 3, MN32 - Year 3, MN32 - Year 4, MN34 - Year 3, MN34 - Year 4, MN35 - Year 3, MN35 - Year 4, MN36 - Year 4, MN36 - Year 5, MN37 - Year 4, MN37 - Year 5, N140 - Year 4, N1R1 - Year 4, N1R3 - Year 4, N1R4 - Year 4, N201 - Year 3, N202 - Year 4, N203 - Year 4

Pre or Co-requisites

This module is not available for single honours L100 students.

Summary:

Modules: EC131-15 or EC229-15 or EC107-30 or EC204-30

Assessment

Assessment Method: Centrally-timetabled examination (On-campus) (100%)
Coursework Details: Centrally-timetabled examination (On-campus) (100%)
Exam Timing: Summer