20620 - ECONOMICS OF BUSINESS STRATEGY - MODULE II (TRANSACTIONS AND INCENTIVES)

A good knowledge of basic microeconomics and game theory as developed in the Emit courses taken during the first term 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 the 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. Large part of the innovation process involve 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 models rooted in the main theoretical developments in the fields of management, strategy, (organizational) economics, and entrepreneurship.

The course consists of traditional lectures, exercise sessions, experiments, data analysis sessions, 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 perspective of transaction costs economics and incomplete contracts to analyze interfirm relationships (e.g., collaborations, strategic alliances, open innovation). The second part is devoted to analyze intrafirm relationships and the strategic management of human capital.

Part I – Interfirm relationships:

• Intro to bargaining.
• Incomplete contracts.
• Managing (open) innovation.
• Co-opetition in strategic alliances.

Part II – Intrafirm relationships:

• Intro to theory of incentives.
• Managing under asymmetry of information.
• Delegation of autonomy and incentives.
• Strategic management of human capital.

• Assess the advantages and challenges faced by entrepreneurial and established firms when choosing innovation-based strategies, understanding the managerial implications of organizing internal and external sources of innovation.

• Conceptualize the main economic frictions of an innovation process.
• Think about strategizing efforts for interorganizational transactions.
• 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
• Guest speaker's talks (in class or in distance)
• 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, exercise sessions, in-class (individual) experiments, data analysis sessions and case study discussions (in groups), 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.

Attending students have the choice to take either two partial written exams or a single general written exam. Attending students are required to participate in case study and data analysis sessions. These sessions require the assessment and discussion of specific business cases and datasets with the objective of applying the theoretical frameworks developed in class to real settings. The effective development of these sessions requires the following:

• An individual assessment of the case/dataset prior to the case session.
• A group analysis and discussion of the case/dataset during the case session.

Attending students who effectively participate in these sessions earn 0-2 points towards the final grade of the course.

The non-attending students can take the general written exam at the end of the course. The exam can consist of true/false questions, multiple choice, exercises, and open-ended questions related to the topics taught in the course and to the papers in the reading list.

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.