AØKK08218U Organizations and Incentives

Why do firms and other types of organizations exist? Which factors determine whether they succeed in achieving efficient levels of cooperation and coordination amongst their members? How does individual behavior and organizational performance depend on compensation structures and the allocation of tasks and authority within an organization? How do coworker relationships, employees’ work morale, and the perceived fairness of one’s pay influence workplace behavior?

During the past decades, research in economics has made great progress in answering such questions by opening the “black box” of what happens within firms and other organizations. In this course, students will be introduced to the key theoretical concepts and empirical approaches that help understand the existence, design, and performance of organizations. After discussing a number of classical studies on the foundations and boundaries of firms, the main part of the course will focus on the question how economic methods can be used to understand incentives and behavior in organizations. In particular, we will discuss how compensation structures and other organizational features (e.g., hierarchies, teams, authority, and delegation) affect individual motivation and performance.