Introductory description

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.

Module web page

Module aims

Outline syllabus

This is an indicative module outline only to give an indication of the sort of topics that may be covered. Actual sessions held may differ.

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.

Learning outcomes

By the end of the module, students should be able to:

• 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.

Indicative reading list

Reading lists can be found in Talis

Specific reading list for the module

Subject specific skills

Analyse employment relationships using economics models.
Design and evaluate incentive and compensation systems.
Apply economic theory to recruitment, training, monitoring, performance evaluation, and teamwork.
Interpret empirical evidence on workplace behaviour and organisational performance.

Transferable skills

Analytical and quantitative reasoning.
Strategic problem solving.
Decision making under uncertainty.
Critical evaluation of evidence.
Communication of complex arguments.
Application of economic frameworks to practical organisational problems.