20620 - ECONOMICS OF BUSINESS STRATEGY - MODULE II (TRANSACTIONS AND INCENTIVES)
Course taught in English
Go to class group/s: 22
Good knowledge of basic microeconomics and basic game theory as developed in Bachelor courses is a pre-requisite for this course. Yet, because students have different backgrounds and preparation levels, the course aims to be self-contained. The lectures provide additional technical background to successfully attend this course.
Innovation is a key component of success for large incumbent firms as well as for new entrants. A large part of the innovation process involves transacting with other firms (collaborating and forming alliances to expand resource bases, knowledge bases, and capabilities across organizational boundaries) and incentivizing knowledgeable individuals within the firm. The aim of this course is to provide students with analytical frameworks to assess innovation-based strategies within and between firms, in both entrepreneurial and established firms. The course focuses on the development and application of conceptual and formal models rooted in the main theoretical developments in the fields of management, strategy, and organizational economics.
The course consists of traditional lectures, exercise sessions, in-class experiments, in-class group assignments, and case study discussions, allowing students to understand the managerial implications of the theory and to develop the necessary analytical skills to assess the advantages and challenges of organizing the internal and external sources of innovation. The topics of the course are ideally divided into two parts.
- The first part looks at the innovation process from a bargaining, contracting, and incentive perspective, using the lens of transaction costs economics and incomplete contracts to analyze interfirm relationships (e.g., collaborations, strategic alliances, open innovation).
- The second part focuses on intrafirm relationships based on coordination and competition, and analyzes the strategic management of human capital.
Part I – Interfirm relationships:
- Negotiation and bargaining models.
- Incomplete contracts.
- Managing (open) innovation.
- Co-opetition in strategic alliances.
- Cooperation with repeated alliances.
Part II – Intrafirm relationships:
- Intro to theory of incentives.
- Coordination and competition within hierarchies.
- Managing under asymmetry of information.
- Delegation of autonomy and incentives.
Strategic management of human capital.
- Assess the challenges faced by entrepreneurial and established firms when collaborating with external partners.
- Understand partners’ strategic behavior in short-lived and in repeated alliances.
- Understand the managerial implications of organizing external sources of innovation.
- Asses the challenges of organizational control and the provision of incentives.
- Understand the strategic management of human capital.
- Conceptualize the main economic frictions of an innovation process.
- Think about strategizing efforts when collaborating with external partners.
- Think about the provision of incentives in human-capital intensive firms.
- Formulate a value creation and capture proposition when organizing for innovation.
- Face-to-face lectures
- Exercises (exercises, database, software etc.)
- Case studies /Incidents (traditional, online)
- Individual assignments
- Group assignments
- Interactive class activities (role playing, business game, simulation, online forum, instant polls)
- The course consists of traditional lectures with the support of slides.
- Exercise sessions aimed to teach students how to set up, solve and interpret the solution to a model.
- In-class individual experiments where students face scenarios that mimick the problems studied formally in class.
- In-class assignments whereby the groups of students are asked to conceptualize specific economic problems.
- Case study discussions whereby the groups of students are required to write a short report, allowing students to understand the managerial implications of the conceptual and formal models developed during the course.
These in-class activities complement the traditional lectures and aim to develop the necessary analytical skills to assess the advantages and challenges of organizing the internal and external sources of innovation.
|Continuous assessment||Partial exams||General exam|
- Attending students have the choice to take either two partial written exams or a single general written exam at the end of the course.
- Attending students are required to be in class during the lectures and to participate to in-class activities that allow them to earn 0-3 points towards the final grade of the course.
- In order to measure the acquisition of the learning outcomes, the students’ assessment is based on two main components:
- In-class participation (to experiments, exercises, and business cases) aimed to test the students’ ability to think critically when applying the conceptual and formal models illustrated during the course.
- Written exam aimed to assess students’ ability to apply the analytical tools illustrated during the course, to solve and interpret models of contracting, bargaining, and the provision of incentives.
Students’ assessment is based on the final written exam at the end of the course that is mainly aimed at
verifying learning of the conceptual and formal models learned when studying the course material (slides, articles, and books) made available on Bboard.
A suggested (non mandatory) list of readings for each one of the topics covered in class is provided. The readings consist of a mixture of book chapters, journal articles, and business cases. The readings are posted in Bboard (or in the course reserve of the Bocconi Library). Slides of the lectures, problem sets, and their solutions are also posted.
A list of readings is made availabe on Bboard together with slides of the lectures, problem sets, and their solutions.