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) 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 follows modern strategy frameworks that emphasize the tension between value creation and value capture and exposes students to a range of formal models and concrete problems faced by firms.
The course consists of traditional lectures, exercise sessions, in-class experiments, group assignments, and case study discussions, allowing students to understand the managerial implications of the theory. The final objective is to gain a good understanding of the analytical tools 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 and analyzes the strategic management of human capital, focusing on the provision of incentives.
- Negotiation and bargaining models.
- Incomplete contracts.
Part I – Interfirm relationships:
- Managing (open) innovation.
- Co-opetition in strategic alliances.
- Cooperation with repeated alliances.
Part II – Intrafirm relationships:
- The theory of the firm.
- Managing under asymmetry of information.
- Delegation of autonomy and incentives.
Strategic management of human capital.
-Acquire the analytical tools to assess the organization of internal and external sources of innovation;
-Understand the challenges of strategic alliances and open innovation;
-Apply conceptual and formal models related to the provision of incentives;
-Understand the tension between value creation and value capture in inter- and intrafirm relationships.
-Address the challenges of innovation when managing inter- and intrafirm relationships;
-Analyze bargaining situations having in mind the drivers of bargaining outcomes;
-Address the challenges of the provision of incentives to knowledgeable individuals.
- Face-to-face lectures
- Exercises (exercises, database, software etc.)
- Case studies /Incidents (traditional, online)
- Group assignments
- Interactive class activities (role playing, business game, simulation, online forum, instant polls)
-Exercises: homeworks solved in class with the participation of the students;
-Case studies: the students work in teams to analyze business applying the formal models studied in class;
-Group assignments: the students work in teams to address theoretical problems with the help of the models studied in class;
-Interactive class activites: the students participate to role playing games that resemble the problems (that will be) studied in class.
|Continuous assessment||Partial exams||General exam|
To measure the acquisition of the learning outcomes, the students’ assessment is based on two main components:
- Individual experiments and team assignments for both exercise sessions and business cases aimed to test the students’ ability to think critically when applying the conceptual and formal models illustrated during the course. Students must read the case posted in advance in the course reserve of the Bocconi Library to get ready to contribute to the group analysis and discussion during the case session. Teams will answer to specific questions presented in class writing a three-page memorandum.
- A final written exam aimed to assess students’ ability to apply the analytical tools illustrated during the course, and to solve and interpret models of contracting, bargaining, and the provision of incentives.
The team assignments will count for 60% of the final grade (9 points overall for the business cases and 9 points overall for the pressure tests and the team assignment), whereas the final exam will count for 40% of the final grade.
The non-attending students take a written exam at the end of the course. The exam will cover the lectures and the problem sets that will be uploaded on Blackboard and the material with an asterisk in the reading list.
The content of the class lectures and the lecture notes are the only required material for the exam for attending students. The readings are only suggested for the attending students.
A list of readings is made availabe on Bboard together with slides of the lectures, problem sets, and their solutions.