Chair of Organizational Theory –

Thinking broadly but deeply: economic theory and practical applications.

About us

The Chair of Organizational Theory, directed by Professor Dr. Peter-J. Jost was established in 1995. The general research focus is on the application of game theory in the area of management. Our research focus also looks beyond - in management, problems in accounting, marketing, motivation, coordination, production, and strategy are discussed, plus phenomena in sports, culture, or religion.

The research at the chair is concerned with the integration of economic theory into business administration. The aim is to answer organizational questions using methods of microeconomic theory. The individual questions are as follows:

  • How must the activities of decision-makers within an organization be designed so that there is appropriate coordination and coordination of individual activities?
  • How can the organizational participants, including their specific individual personality traits, be motivated to align their activities with the planned coordination system?
  • How can a cooperative cooperation of the organization participants be achieved if one assumes in principle that the action of the individual follows the methodological individualism?
  • What influences does a company's relationship to its environment have on its organizational design in terms of coordination and motivation?
  • What effects does the framework of an industrial relationship have for the management of the factor labor as a strategic resource of the company?

This combination of questions are to be processed with the help of the microeconomic instruments (transaction cost theory, property rights approach, information theory and game theory). Other business research approaches and the results derived from them should be economically sound.

Our team

Professor Dr. Peter J. Jost

Chairholder

+49 (0)261 6509 300
Send email
View CV & Publications

Dr. Anna Theresa Ressi

Juniorprofessorin

Send email
View CV & Publications

Ilka Daleki

Personal Assistant

+49 (0)261 6509 301
Send email

Chiara Westmeyer

Student Assistant

Send email

Justus Schroeder

Student Assistant

Send email

  • Cornelius Berns Dipl. Kaufmann

Cornelius.Berns(at)whu.edu
+49 (0)261 6509 301

  • Leonore Boscher Dipl. Kauffrau

Leonore.Boscher(at)whu.edu
+49 (0)261 6509 301

  • Anja Skischally MA, BA

Anja.Skischally(at)whu.edu
+49 (0)261 6509 301

  • Justus Spengler

justus.spengler(at)whu.edu
+49 (0)261 6509 303

Theses

Bachelor and Master theses

  • The Chair supports Bachelor theses in the following areas:

Corporate strategy / Interfirm cooperation / Organization of firms / Human-Resource-Management / Motivation of employees / Theory of the firm / Experiments on individual decision making

  • The Chair supports Master theses in the following areas:

Personnel economics / Industrial economics / Organizational economics / Game theory

Contact us

Publications

Science is like sex –
It may give some practical results, but that’s not why we do it.

  • Jost, P.-J., Wagenhofer, A., (ed.): SBR Special Issue, zfbf, Vol. 58, April 2006
  • Jost, P.-J., Wagenhofer, A., (ed.): SBR Special Section, zfbf, Vol. 57, January 2005
  • Jost, P.-J., Wagenhofer, A., (ed.): SBR Special Issue, zfbf, Vol. 56, October 2004
  • Jost, P.-J., Fandel, G., (ed.): Strategic incentives in the company, ZfB supplement 04/2004, Gabler, Wiesbaden, 2004
  • Jost, P.-J., Fandel, G., (ed.): Economic Analysis of Governance Structures, ZfB Supplement 5/2003, Gabler, Wiesbaden, 2003
  • Jost, P.-J., Albach, H., (ed.): Theory of Enterprise , ZfB Supplement 4/2001, Gabler, Wiesbaden, 2001
  • Jost, P.-J., (ed.): The principal-agent theory in business administration , Schäffer-Poeschel, Stuttgart, 2001
  • Jost, P.-J., (ed.): The Game Theory in Business Administration , Schäffer-Poeschel, Stuttgart, 2001
  • Jost, P.-J., (ed.): The Transaction Cost Approach in Business Administration , Schäffer-Poeschel, Stuttgart, 2001
  • JOST, P.-J.: Endogenous formation of entrepreneurial networks. Small Business Economics (2019), doi:10.1007/s11187-019-00199-w
  • JOST, P.-J.: The Role of Referees in Professional Sports Contests (with C. Duvinage), Journal of Sports Economics 20 (2019), 1014-1050
  • JOST, P.-J., Süsser, T.: Company-customer interaction in mass customization, International Journal of Production Economics (2019), doi.org/10.1016/j.ijpe.2019.07.027
  • JOST, P.-J.: Competitive insurance pricing with complete information, loss-averse utility and finitely many policies, Insurance: Mathematics and Economics 66 (2016), 11-21
  • FEESS, E, JOST, P.-J., MÜLLER, H.: The Influence of Ability, Rank, and Gender on Risk-Taking in Contests: Evidence from the Ski World Cup, Journal of Institutional and Theoretical Economics (JITE) 172 (2016),  573–614
  • JOST, P.-J., Zschoche, M.: Organizing dynamic capabilities: Exploiting complementarities by organizational bundling (with M. Zschoche), Journal of Competence-Based Strategic Management (formerly: Jahrbuch Strategisches Kompetenzmanagement) 8 (2016), 11-27
  • Jost, P.-J., Schubert, S., Zschoche, M .: Incumbent Positioning as a Determinant of Strategic Response to Entry, Small Business Economics 44 (2015), 577-596
  • Jost, P.-J .: How to Protect your Premium Product from Low-price Competitors: Price, Quality, or Portfolio Adjustment? International Journal of Research in Marketing , Vol. 31 (2014), 253-265
  • Jost, P.-J .: An Economic Theory of Leadership Styles, Review of Managerial Science , Vol. 7 ( 2012 ),   365-391
  • Jost, P. J .: Joint V entures in P atent contests with spillovers and the Role of Strategic B udgeting, Journal of Economics and Business , Vol 63 (2011), 605-637
  • Jost, P.-J., Wolff, F.-S .: Stock Options under Non-expected Utility Theory , Problems and Perspectives in Management , Vol 8 ( 2010 ), 182-196
  • Jost, P.-J., Lammers, F .: Organization of Project Evaluation and Implementation under Moral Hazard, Journal of Institutional and Theoretical Economics , Vol. 166 (2010), 212-238
  • Jost, P.-J., Lammers, F .: The Organization of Project Evaluation Under Competition, Review of Managerial Science, Vol. 3 (2009), 141-155
  • Jost, P.-J., van der Velden, C .: Organizational Design of R&D after Mergers and the Role of Budget Responsibility, Journal of Economics and Business, Vol. 60 (2008), 469-484
  • Jost, P.-J., Kräkel, M .: Human Capital Investments in Asymmetric Job-Promotion Tournaments, Journal of Economics and Business, Vol. 60 (2008), 312-331
  • Jost, P.-J., Kräkel, M .: Simultaneous- and Sequential-Move Tournaments with Heterogenous Agents, Schmalenbach Business Review, Vol. 58 (2006), 306-331
  • Jost, P.-J., van der Velden, C .: Mergers in Patent Contest Models with Synergies and Spillovers, Schmalenbach Business Review, Vol. 58 (2006), 157-179
  • Jost, P.-J., Kräkel, M .: Preemptive Behavior in Sequential-Move Tournaments with Heterogenous Agents, Economics of Governance, Vol. 6 (2005), 245-252
  • Jost, P.-J., Wolff, FC: The subjective valuation of stock option plans: An experimental investigation, ZfbF special issue, Vol. 50 (2003), 145-160
  • Jost, P.-J., Kräkel, M .: Preemptive Behavior in Sequential Tournaments, ZFB Supplement 2 (2002), 125-130
  • Jost, P.-J .: Crime, Coordination, and Punishment: An Economic Analysis, International Review of Law and Economics, Vol. 21 (2001), 23-46
  • Jost, P.-J., Webers, S .: Human capital investments and the delegation of decisions, Zeitschrift für Betriebswirtschaft, 2 (2001), 183-202
  • Jost, P.-J., Renner, E .: Experimental Didactics in Economics, Journal of Business Administration, -Additional Book 3 (2000), 179-190
  • Jost, P.-J .: Flexible shortening of working hours: Opportunities and limits from the perspective of the company, Zeitschriftführung + Organization ,, 68th year (1999), 202-206
  • Jost, P.-J., Höreth, T .: Flexibilisation of working life, Zeitschriftführung + Organization, 66th year (1997), 156-163
  • Jost, P.-J .: Regulatory Enforcement in the Presence of a Court System, International Review of Law and Economics, Vol. 17 (1997), 491-508
  • Jost, P.-J .: Monitoring, Appeal and Investigation: The Enforcement and Legal Process, Journal of Regulatory Economics, Vol. 12 (1997), 127-146
  • Jost, P.-J .: Limited Liability on the Requirement to Purchase Insurance, International Review of Law and Economics, Vol. 16 (1996), 259-276
  • Jost, P.-J .: On the Role of Commitment in a Principal-Agent Relationship with an Informed Principal, Journal of Economic Theory, Vol. 68 (1996), 510-530
  • Jost, P.-J., Gehrig, T .: Quarks, Lemons and Self-Regulation: A Welfare Analysis, Journal of Regulatory Economic, Vol. 7 (1995), 309-325
  • Jost, P.-J .: Disclosure of Information and Incentives for Care , International Review of Law and Economics, Vol. 15 (1995), 65-85
  • Jost, P.-J .: Economic Analysis of Procedural Aspects in the German Environmental Liability Law, Journal of Institutional and Theoretical Economics, Vol. 149 (1993), 609-633
  • Jost, P.-J .: Monitoring in Principal-Agent Relationships, Journal of Institutional and Theoretical Economics, Vol. 147 (1992), 517-538
  • Jost, P.-J .: Decision Rules in a Judicial Hierarchy: Comment, Journal of Institutional and Theoretical Economics, 161 (2005), 293-298
  • Jost, P.-J .: Outsourcing: Guiding ideas for examining and realizing outsourcing potential - The path to success, Die Wirtschaft 11/2003, 12-15
  • Jost, P. J .: Strategic behavior and detection of information, the Wirtschaftsstudium 1 (2002), 83-88
  • Jost, P. J .: Strategic behavior and timing of strategic moves (II), the Wirtschaftsstudium 7 (2001), 978-981
  • Jost, P. J .: Strategic behavior and timing of strategic moves (I), the Wirtschaftsstudium 6 (2001), 830-833
  • Jost, P. J .: conflict management and organization problems, the Wirtschaftsstudium 4 (2000), 510-523
  • Jost, P.-J .: Organizational Theory at the University of Management , Journal of Leadership + Organization , 68th year (1999), 202-206
  • Jost, P.-J .: Generation and Transfer of State Knowledge in the System of Administrative Law - An Economic Discussion, in: I. Speicker gen. Döhmann and P. Collin (Ed.): Generation and Transfer of State Knowledge in the System of Administrative Law, New Political Science 10, Mohr Siebeck, Tübingen, 331-346
  • Jost, P.-J .: An Economic Theory of Employee Management, in: W. Franz, HJ Ramser and M. Stadler (ed.): Employment Contracts, Scientific Seminar Ottobeuren, 37, 2008, Mohr Siebeck, Tübingen, 73-102
  • Jost, P.-J .: Institutional Economics, in: Richard Köhler, Hans-Ulrich Küpper and Andreas Pfingsten (ed.): Handwirtschaftsbuch der Betriebswirtschaft, 6th edition, Schäffer-Poeschel, Stuttgart (2007), 781-790
  • Jost, P.-J .: Strategic Management, in: Michael Bitz et al. (Ed.): Vahlens Compendium of Business Administration, Volume 2, 5th ed., Vahlen, Munich (2005), 185-246
  • Jost, P.-J .: Transaction Cost Theory, in: A. v. Werder and Schreyögg G. (ed.): Handbuch for Corporate Management and Organization, 4th edition, Schäffer-Poeschel, Stuttgart (2004), 1450-1458
  • Jost, P.-J .: Conflict and Cooperation Management, in: E. Gaugler, WA Oechsler and W. Weber (ed.): Handbuch des Personalwesensens, Schäffer-Poeschel, Stuttgart (2004), 1014-1025
  • Jost, P.-J., Hack, A., van der Velden, C .: Organization of International Enterprise, in: W. Breuer and M. Gürtler (ed.): International Management, Gabler, Wiesbaden (2003), 113 -162
  • Jost, P.-J .: Securing human capital investments - decision delegation and decision participation, in: U. Backes-Gellner, C. Schmidtke (ed.): Education system and company employment strategies from an international perspective, Duncker & Humblot, Berlin (2002), 59-79
  • Jost, P.-J .: Success factors for young companies in the new economy (with A. Hack and C. Jost), in: F. Keuper (ed.): Strategic E-Business, Gabler, Wiesbaden (2001), 37- 72
  • Jost, P.-J., Demougin, D .: Theoretical Foundations of the Principal-Agent Theory, in: P.-J. Jost (ed.): The principal-agent theory in business administration, Schäffer-Poeschel, Stuttgart (2001), 46-81
  • Jost, P.-J .: The principal-agent theory in a corporate context, in: P.-J. Jost (ed.): The principal-agent theory in business administration, Schäffer-Poeschel, Stuttgart (2001), 10-41
  • Jost, P.-J .: Theoretical foundations of game theory, in: P.-J. Jost (ed.): Game theory in business administration, Schäffer-Poeschel, Stuttgart (2001), 43-77
  • Jost, P.-J .: The game theory in the corporate context, in: P.-J. Jost (ed.): Game theory in business administration, Schäffer-Poeschel, Stuttgart (2001), 9-40
  • Jost, P.-J .: In-house coordination, in: P.-J. Jost (ed.): The transaction cost approach in business administration, Schäffer-Poeschel, Stuttgart (2001), 301-335
  • Jost, P.-J., Erlei, M .: Theoretical basis of the transaction cost approach, in: P.-J. Jost (ed.): The transaction cost approach in business administration, Schäffer-Poeschel, Stuttgart (2001), 36-75
  • Jost, P.-J .: The transaction cost approach in the corporate context, in: P.-J. Jost (ed.): The transaction cost approach in business administration, Schäffer-Poeschel, Stuttgart (2001), 9-33
  • Jost, P.-J .: The decentralization of collective bargaining: An economic analysis, in: Ott, C. and H.-B. Schäfer (ed.): Economic analysis of labor law, Mohr Siebeck (2001), 174-188
  • Jost, P.-J .: Coordinated behavior in environmental crimes: A game theory argument, in: Weber, J. (ed.): Umweltmanagement. Aspects of environmentally related corporate management, conference proceedings of the 58th annual conference of the Association of University Teachers for Business Administration in Vallendar, Schäffer-Poeschel-Verlag, Stuttgart (1997), 215-235
Load more

The book provides an economic-psychological approach for successfully managing employees. Based on the analysis of the employee's individual work behavior, he illustrates that instead of treating employees as input elements of production, and managing and controlling their work, organizations need to motivate their employees to act in the interest of the firm and in accordance with its goals. The author considers the employee as the 'building block' holding economic organizations together, and outlines how their personal circumstances, behavior and working conditions affect motivation. The influence of individual decision-making processes and psychological factors on behavior in the workplace is also discussed. Theoretical insights are underpinned by a range of case studies, and the impact of inadequate leadership on firms is highlighted.

This book provides a comprehensive economic approach for the analysis of organizational structure. It considers the parallels of coordination within companies, coordination between companies and market coordination and offers an economic analysis of the advantages and disadvantages of various instruments of coordination. Looking at examples in the practical world, it provides individual concepts and insights on an economic approach to organization. The book initially presents an overall framework of economic organization and its architecture. It then analyzes non-hierarchical coordination mechanisms, and the structure of hierarchical co-ordination before addressing the choice of a suitable organizational structure. The book will be useful for students of economic and social sciences, with an emphasis on organization and personnel,

Organizations are one of the few things in life that we accept as natural and natural. As different as organizations are, they all have a common characteristic: they are systems in which people interact with each other in order to achieve certain economic or non-economic goals.

The aim of this book is to give a closed economic approach to analyzing the design of organizations. The focus is on the organizational form of a company. We will also show the parallels between internal and market coordination. The individual concepts and findings of the economic approach are illustrated using examples from corporate practice and society.

The book is divided into three parts:

  • Organization and the importance of coordination
  • The coordination of economic activities: from the market to the hierarchy
  • The hierarchy as a coordination mechanism

The textbook is aimed at students of business administration with a focus on organizational theory and human resource management. It provides practitioners with valuable information when examining organizational issues.

Companies are increasingly forced to see their human resources as a key success factor in competition. An important prerequisite for this is the motivation of the employees.

The aim of this textbook is to develop an economic-psychological approach for the successful management of employees. The basis of this approach is the study of individual work behavior. Building on this, the requirements for the line manager regarding employee management are shown and various motivational tools are presented.

The book is aimed at lecturers and students in economics and social sciences, particularly with a focus on organization and personnel, as well as managers and practitioners with management responsibility in organization and management.

Whenever a group of individuals come together and interact in order to reach a common goal, differing individual preferences can lead to conflict. This book focuses on the management of these internal conflicts within business organizations.

Peter-J. Jost and Utz Weitzel analyze organizational conflicts and illustrate how the parties involved utilize strategic actions to achieve a desired outcome in conflict. The authors use numerous examples of internal conflicts that are well-known to both practitioners and academics to define and explain the basic concepts of game theory. They then focus on the management of conflict, highlighting how the strategic behavior of conflicting parties can be influenced by direct governance or by changing organizational framework parameters. In contrast to much of the existing literature in this field, the focus is not on formal definitions or mathematical proofs, but solely on the application of game theory to strategic conflict management.

This book represents a valuable tool in the assessment of organizational conflicts from a fresh, strategic perspective underpinned by game theory. It will therefore prove fascinating reading for scholars and practitioners with an interest in a broad range of fields encompassing business and management, strategic management, organizational studies, human resource management and game theory.

The scope of the microeconomic approach has expanded over the past three decades to a variety of areas of life outside the economy. The focus of research interest is no longer solely on the functioning of price formation processes in market economies, but on explaining a wide variety of social phenomena. The investigation of companies is therefore a direct area of ​​application of the microeconomic approach.

The aim of this book is to introduce the economic approach to the analysis of organizations. Using case studies, the basics of such an economic organizational theory are presented and a general framework for an economic analysis of organizational design is derived.

The book is divided into three parts:

  • Economic organizations and their basic principles
  • The efficiency of economic organizations
  • An introduction to the economic analysis of organizations

The textbook is aimed at students of business administration with a focus on organizational theory and human resource management. It provides practitioners with valuable information when examining organizational issues.

Load more

Find out more about Schäffer-Poeschel

You are standing in front of a post office counter, it is just before 6 p.m. The counter closes in five minutes and you still have a letter that urgently needs to go. In front of them are two people in line, actually no problem. Then a call, the woman behind the counter picks up the phone, a friend calls. It's about today's movie that the two want to watch, that's what they get. Two to six and still do not know what they want to see. 6:00 p.m., they have agreed on the new James Bond. The woman at the counter hangs up, looks at the clock, closes the counter and wishes them all a nice evening.

Most of us will have experienced such an event in one way or another. And again and again we asked ourselves: "What are people actually paid for?" Obviously, the woman at the counter lacks the incentives to serve her customers and only then finish work. She is not motivated by herself to respond to her concerns, nor does her payment seem to depend in any way on whether she leaves satisfied customers behind.

"Incentives are the essence of economics", says Prendergast (1999, p. 7) in her overview article on the design of incentives in companies and economists could certainly give many suggestions as to how bureaucratic structures can be made more customer-friendly. The basis for many of these recommendations will be a model that, in one form or another, represents the basic structure of every organization with a division of labor: the principal-agent model, in which a principal commissions an agent to perform a task. The principal is the client, the agent is his representative. The reasons for this delegation are taken for granted. They can be in the principal's temporal, cognitive, or physical restrictions, or they can simply indicate the agent's comparative strengths.

"The greatest improvement in the productive powers of labor, and the greater part of the skill, dexterity, and judgment with which it is any where directed, or applied, seem to have been the effects of the division of labor" (p. 7 )

Smith also points out that delegating a task to an agent can have not only advantages but also disadvantages. In connection with the separation of property and control in modern corporations, he states:

"The trade of a joint stock company is always managed by a court of directors .... The directors of such companies, however, being managers rather of other people's money than of their own, it cannot well be expected, that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. " (P. 741)

Berle and Means (1932) took up this topic in the 1930s and argued that with a broadly diversified share capital manager successively used company resources for their private goals and "looted" the company. They make it particularly clear that such “corporate plundering” is due to the incompleteness of the market for corporate control.

It was only in the 1970s that this incompleteness of markets was taken up and further developed by several economists in the context of contract theory. In between there were 20 years in which another theory dominated economic research: the general equilibrium theory developed by Kenneth J. Arrow and Gérard Debreu in the 1950s. They consider an economy with companies and private households as a market participant and demonstrate that, under certain assumptions, buyers 'demand decisions and sellers' offer decisions can be coordinated in all markets solely through the price mechanism. This result is absolutely surprising at first glance, because every market participant makes his decisions independently of the decisions and information of the other market participants. Nonetheless, the price system ensures that the individual economic decisions of all those involved are fully coordinated. Although the general theory of equilibrium is undoubtedly one of the milestones of economic thought, it soon became clear that this model was not a satisfactory representation of reality. In particular, the role of companies in this model was degenerate, for at least three reasons: it soon became clear that this model was not a satisfactory representation of reality. In particular, the role of companies in this model was degenerate, for at least three reasons: it soon became clear that this model was not a satisfactory representation of reality. In particular, the role of companies in this model was degenerate, for at least three reasons:

In this model, every entrepreneur has complete information on all aspects that are relevant, for example, in his relationship with a potential employee. So he knows, for example, what skills this has or what services someone will provide with whom he signs an employment contract. Strategic interactions are completely excluded here. The same naturally also applies to a potential employee. For example, he knows what working conditions await him at the company or what work he has to do at what time and how. At best there is uncertainty about the future, but all parties can estimate that equally well.

Since such an entrepreneur and an employee can regulate the work to be performed down to the last detail when the employment contract is concluded for all possible eventualities that could arise in the course of the employment relationship, an employee has no decision-making autonomy at all. This means that all company-internal activities are fully coordinated through such employment contracts, so that there is no problem for the company-internal organization. In particular, this means that an employee is not employed in the usual sense “employee of a company” but only on a short-term basis. The company is therefore only a one-man company.

The general equilibrium theory assumes that there is a market for all goods. If, for example, one considers the job satisfaction of a worker as the good to be traded, then the demand of the workers for job satisfaction would be balanced in a corresponding market. The problem with this is that job satisfaction cannot be measured objectively in monetary units. However, there is no market for employee job satisfaction and consequently external effects arise: The entrepreneur will not take the job satisfaction of the employee into account in his decisions, since the satisfaction of these needs is not covered by the price mechanism.

These deficits of the general equilibrium model in the 1970s focused the question of the strategic interactions of market participants in further research. The basis for this was the departure from a world with complete information. Rather, situations were considered in which the parties were not informed omnisciently. The associated increased focus on the specifics of the respective situation inevitably led to the fact that instead of a general model with many actors, only a section of the economy was considered. Insurance markets in which insurers were unable to directly observe the provision behavior of their insured or commercial vehicle markets in which buyers could not easily assess the quality of the vehicles offered,

The principle-agent theory as it is presented in this book then developed on the basis of these premises and findings: Instead of examining the entirety of the interactions on (sub) markets, the analysis of the strategic interdependencies of individual (mostly two) Actors in the foreground of consideration. The relationship between doctor and patient, tax authority and taxpayer or also financier and manager are just a few of the many examples that could be investigated with the help of this theory.

What is common to all these examples is that one party wants to control the activities of the other party in its sense. In one case or the other, this can be mutually exclusive, but always justifies the problem of suitable management, i.e. a contract problem. The associated explicit consideration of the institutional framework of the respective situation was therefore an immediate response to the deficits of the general equilibrium theory: asymmetrical distribution of information and decision delegation between principal and agent, as well as external effects that affect the success or failure of the principal through the performance of the agent's tasks , are the core elements of the principal-agent theory.

This basic structure of a relationship, which can be found in many everyday situations, can explain why the principle-agent theory has always been applied to business issues since its beginnings: Based on the design of the remuneration system in the relationship between supervisor and employee, In recent years, the most varied of internal company problems have been analyzed with the help of the principal-agent theory: The range here extends from the design of inter-company cooperation to questions of corporate finance, marketing and work organization to the analysis of personnel management or strategic problems.

It is therefore surprising that this multitude of applications of principal-agent theory in business administration has not yet been summarized. This book aims to close this gap: The aim is to provide a largely comprehensive overview of the application of principal-agent theory in business administration. This includes both empirical, experimental and theoretical work in this area. The book is divided into three parts as follows:

In Part I, we first introduce the basic terms and basic models of the principal-agent theory. In this general analysis framework, we then embed the various internal and external principal-agent relationships and thus provide an overview in Chapter 1 of the applications of the principal-agent theory in business administration. In Chapter 2, we then introduce the theoretical principles of the principal-agent theory and systematically derive the basic results.

Part II of the book deals with the applications of principal-agent theory in the various business areas in a series of articles. The individual chapters are corporate governance, financing, auditing, strategy and organizational structure, marketing, vertical corporate cooperation, production and logistics, internal task allocation and delegation, controlling, personnel management and accounting.

Find out more about Schäffer-Poeschel

In economics, one speaks of a game whenever several parties interact with each other. Obviously, we encounter games every day in real life: For example, when we drive to the office in the morning in the car, we play a game with the other road users. If a mother wants to get her son to tidy up his room, there is also a game. And if we meet up with a friend at the weekend for tennis, we naturally play a game anyway.

An essential feature of all such games is the interdependence of the parties involved: The decisions of those involved, i.e. the players of the game, are linked to one another. Neither party can autonomously determine the outcome of the situation, rather it depends on the decisions of the other party. When driving to the office, our travel time also depends on how many other people are traveling by car and whether there are any traffic problems. When a mother sends her son into the room to tidy up, it does not mean that the room is actually tidied up afterwards. And whether you win against your tennis partner depends, of course, on their skill level and not just on their decision to win the game.

Various scientific research areas investigate how parties behave in such interdependent decision-making situations. Each of these disciplines is based on certain behavioral premises and cognitive goals. Sociology, for example, takes into account the entire complexity of the parties and their social environment and assumes that the individual behaves according to predefined rules. Social psychology, in turn, tries to fathom the individual's motives and to derive their actions from the resulting goals and the context of action they perceive.

In this context, game theory is the science that examines the strategic behavior of parties in interdependent decision-making situations. The fundamental premise of behavior for the analysis of strategic behavior is the rationality of the parties: each party tries to achieve its own goals in the respective situation as well as possible. The goals it pursues are irrelevant to the analysis. They are assumed to be given. It is essential that each party explores the advantages and disadvantages of its various options for action, weighs them up and then decides on the alternative that promises them the greatest success. With regard to the interdependencies, she will particularly take into account the behavior of the other parties.

The game theory ties in with the behavioral premise of the rationality of the parties to the neoclassical economy, in which markets with monopolistic undertakings or with complete competition were examined: A monopoly is obviously a one-person game, the monopolist is the only active players. On the other hand, with perfect competition, we have a game in which an infinite number of companies interact in a market. Consequently, the work on neoclassical economics can be understood as a special case of game theory, and Ken Binmore (1992, p. 14) aptly states in his introduction to game theory that "neoclassical economics is therefore nothing other than a branch of game theory".

The reason why in the neoclassical especially these two industrial structures were in the foreground of the analyzes is relatively simple: monopolies and complete competition are extreme game-theoretical situations in which a company involved makes its decisions either because of a missing second player or because of an infinite number of others Player can hit autonomously. Oligopolistic markets, on the other hand, in which few companies are involved and so the influence of individuals on their competitors is greatest, could only be examined in part. The works by Cournot (1838), Bertrand (1883) and Edgeworth (1925) on price setting and production in oligopolistic markets are the few exceptions that actually examine game-theoretical interactions.

What researchers at the time lacked was a general theory of strategic behavior in interdependent decision-making situations. This was provided in 1944 by John von Neumann and Oskar Morgenstern with their pioneering book "The Theory of Games and Economic Behavior". With their idea of ​​examining economic issues as games between different players, the two authors can be described as the actual founders of game theory. They examined two approaches to a theory of games:

  • First of all, they turn to the strategic or non-cooperative approach, which requires a detailed description of the strategic options for action of all players in order to infer the best behavior for everyone. In their book, they model such interactions and solve the behavioral problem for two-player games that only have competing interests. This approach is now called non-cooperative game theory for games with any number of players and interests.
  • In the second part of their book, the authors then develop a cooperative approach for games with more than two players. Instead of describing the optimal behavior of the players, they classify the formation of coalitions that can occur in these games. In contrast to the non-cooperative approach, it is not necessary for the framework of the game to fully describe the strategic possibilities of the players. For example, players can enter into binding contracts for their behavior and commit each other to threats or promises. This approach is called cooperative game theory today.
  • While cooperative game theory was at the forefront of research interests in the 1950s and 1960s, the development changed in the early 1970s. Decisive for this were the advances in non-cooperative game theory through the work of John Nash (1950), Reinhard Selten (1965) and John Harsanyi (1967-68). The behavioral concepts they developed, for which they were awarded the Nobel Prize in 1994, were the milestones for the breakthrough of non-cooperative game theory in economics and its application to general interdependent decision-making situations.

It is therefore not surprising that game theory with its premises has been applied to a wide variety of business issues in the past three decades. Because every form of division of labor and cooperation, be it in-house or cross-company, provides the necessary ingredients for a game theory analysis: Due to the division of labor, there are diverse interdependencies between the parties involved and it would be naive to assume a priori that these parties are not within the scope of their cooperation also pursue your own interests, regardless of whether they are suppliers, customers, departments or employees. There are interdependencies and potential conflicts of interest, for example, when there is a competition between two departments for a budget, in the case of necessary coordination between employees in the production process, in the delegation of a work task by a supervisor to his employee, in the location decision of the board in a competitive environment or in ensuring the quality of the preliminary products that are ordered from a supplier. It is all the more surprising in this context that, despite this large number of applications of game theory in business administration, there is as yet no summary description of this literature. This book aims to close this gap: The aim is to provide a comprehensive overview of the application of game theory in business administration. The following explanations concentrate on lateral interactions between different parties, ie no party can control the behavior of another party a priori with the help of an (explicit or implicit) contract. Neither party has a hierarchical relationship to each other, at least at the beginning of the interactions. This book complements the overview volume on "Principal Agent Theory in Business Administration", which was published in parallel with this book.

In detail, the book is divided into three parts as follows: In Part I we first introduce the basic terms and the basic idea of ​​game theory. In this general analysis framework, we then embed the various internal and external game-theoretical interactions and thus provide an overview in Chapter 1 of the applications of game theory in business administration. In Chapter 2 we then introduce the theoretical foundations of game theory and systematically derive general strategic behavioral principles.

Part II of the book deals with the applications of game theory in various business areas in a series of articles. The individual chapters are corporate governance, financing, auditing, corporate strategy, marketing, inter-company cooperation, production and logistics, internal cooperation and controlling.

 

 

The transaction cost approach, at least in German business research, is the research direction of the new microeconomic theory that has been most widely used. If you just browse through the titles of the dissertations in recent years, you will find applications in the areas of credit unions, banking services, municipal business development or securities trading, to name just a few.

In order to understand why the transaction cost theory approach is so important in business research, it is helpful to take a closer look at its origins: The history of the transaction cost approach begins in 1937 with the pioneering work "The Nature of the Firm" by Coase. Before 1937, it was theoretically completely unclear why economic activities in a market economy should be withdrawn from the price mechanism and coordinated hierarchically within a company. In traditional neoclassical theory, companies also played a decisive role - they ask about the production factors provided by households, transform them into output factors and offer them to households as consumer goods and services -, however, in this theory the company is reduced to a simple production function. All activities of a company are handled in corresponding markets, an internal coordination of the various tasks in the transformation process is just as little necessary as a suitable motivation of the employees.

The question of why companies are more than mere one-man companies was the starting point for Coase's work (1937, p. 389):

“In view of the fact that while economists treat the price mechanism as a co-ordinating instrument, they also admit the co-ordinating function of the 'entrepreneur', it is surely important to inquire why co-ordination is the work of the price mechanism in one case and of the entrepreneur in another. ''

To answer this question, Coase used a size that did not play a role in traditional neoclassical theory, the transaction costs:

  • He initially argued that the use of the price mechanism is always associated with costs, the so-called "marketing costs". This included, for example, the search and information costs that are necessary to find the relevant prices in the market, but also the costs for negotiating and concluding contracts or adjustment costs for long-term contracts.
  • From the existence of these costs, he then concluded the existence of companies. These costs cannot be completely eliminated within the company, but they can at least be reduced: Information about the activities to be coordinated within a company can be obtained more cheaply than in the many different markets. In addition, the large number of individual contracts that are required between suppliers and customers for production with market coordination can be replaced by a central contract between the company and the suppliers. And in the case of long-term contracts, a company can use the right to issue instructions to adapt a contract to changing conditions at a lower cost than would be possible via the market.
  • However, there are also costs of internal organization, so-called organizational costs, which increase disproportionately with increasing company size. Decreasing marginal yields are decisive for this, since the spatial expansion and heterogeneity increase with the number of activities that are carried out in a company. In addition, according to Coase, the increasing complexity of internal coordination leads to inefficient use of factors, since the likelihood of incorrect business decisions increases.

If you summarize Coase's argument, it shows that the coordination of an economic activity is associated with costs, regardless of whether it takes place in the market or takes place in the company. The level of these transaction costs is then decisive for the advantages of one of these two alternatives: A company will integrate market transactions until the costs of including an additional transaction are higher than the costs of coordination through the price mechanism.

Although Coase's work represented a milestone in the theory of business, it remained largely unnoticed in scientific research until the 1970s. Coase (1972, p. 63) characterized his work as "much cited but little used". This development only changed with the work of Williamson (1975; 1985). Based on the ideas of Coase, he examined which specific characteristics of a transaction have a decisive influence on the transaction costs associated with a market or hierarchical processing. His idea was the following (1975, p. 8):

“The costs of writing and executing complex contracts across markets vary with characteristcs of the human decision makers who are involved with the transaction on the one hand, and the objective properties of the market on the other; and although the human and environmental factors that impede exchanges between firms (across a market) manifest themselves somewhat differently within the firm, the same factors apply to both. "

The further research determined the identification of critical factors for the amount of the transaction costs and the investigation of the properties of alternative coordination mechanisms. It was crucial that the focus was shifted from the original question of vertical or lateral integration at Coase to the basic handling of economic activities. Here Williamson also does crucial preliminary work, but other authors such as Barzel, Klein, Crawford or Alchian also contributed to the theoretical foundation of the transaction cost approach.

An important further development of the transaction cost approach has recently been the theory of incomplete contracts, which goes back to the basic work of Grossman and Hart (1986). In contrast to the more verbal argumentation of the transaction cost approach, this theory deepens specific aspects of transaction cost theory by means of a formal model. The vagueness in the definition of terms and the derivation of its core statements can explain why the transaction cost approach has found a permanent place in business research in recent decades: The decisive advantage of such a procedure is the great flexibility in its application. A large number of empirical studies and practical case studies have emerged since the 1980s, who applied the general framework of the transaction cost approach to a wide variety of economic phenomena. In addition to questions that were not directly related to the company, such as the economy of the family or marriage, the main focus of the studies was on exchange relationships that are directly related to business issues: From vertical and lateral integration to transfer prices, corporate finance, marketing and work organization to inter-company cooperation and industrial relations. It is therefore surprising that this multitude of applications of the transaction cost approach in business administration has not yet been summarized. This book aims to close this gap: The aim is to To provide a largely comprehensive overview of the application of the transaction cost approach in business administration. This includes both empirical and theoretical work in this area. The book is divided into three parts as follows:

In Part I we first introduce the basic terms and the basic idea of ​​the transaction cost approach. We then embed the various internal and external exchange relationships in this general analysis framework and thus provide an overview in Chapter 1 of the applications of the transaction cost approach in business administration. In Chapter 2, we then introduce the theoretical basics of the transaction cost approach and systematically derive the general design principles of the approach.

Part II of the book deals with the application of the transaction cost approach in the various business areas in a series of articles. The individual chapters are corporate governance, financing, strategy and organizational structure, internationalization, marketing, inter-company cooperation, production, internal coordination, personnel management, remuneration and accounting.

In Part III, we then go into the limits of the transaction cost rate and the emerging developments. Chapter 14 first deals with the problem of the operationalizability of transaction costs for cost accounting. Chapter 15 then reflects on the implicit and explicit assumptions of the transaction cost approach and addresses its importance as an instrument of the new micro theory.

Objective of the series

The investigation of companies, organizational structures and business decisions is a direct area of ​​application of the microeconomic approach. With the instruments and methods developed there, it is possible to make a variety of business issues accessible to a differentiated economic analysis.

The aim of the series is to apply and further develop the economic approach to business issues. The investigations focus on a wide variety of internal company problems, such as in the areas of finance, organization or strategic management. The series is intended to contribute to the microeconomic foundation of the subject.

Editorial Board

Editor:

  • Peter-J. Jost

Editorial Board:

  • Dominique Demougin
  • Klaus Peter Kaas
  • Werner Neus
  • Bernd Schauenberg
  • Eva Terberger
  • Alfred Wagenhofer

Published by Schäffer-Poeschel

Objective of the series

Over the past two decades, a new microeconomic approach has developed which, unlike traditional neoclassical analysis, is not limited to the market area, but which is basically suitable for the analysis of social interaction situations. Information economics, game theory, experimental studies, new institutional economics and economic psychology are important building blocks of this economic approach.

The aim of the series "Management, Organization and Economic Analysis" is to apply and further develop this economic approach to business issues. The investigations focus on a wide variety of internal company problems, such as in the areas of finance, organization or strategic management. The series is intended to contribute to the microeconomic foundation of the subject.

Published by Gabler

Cultural funding in the Federal Republic of Germany is largely left to the state, either directly or indirectly (through tax deductibility). But there is also a private commitment as a supplement to state cultural support.

This cultural sponsorship aims to balance the interests of the company, to use cultural sponsorship as a communication tool for its purposes, and the sponsored cultural institution's interest in tapping an additional source of finance through sponsorship funds in order to improve the cultural offer. In individual cases, these interests can conflict with each other. Sponsoring will only work if there is a balance of interests.

The study is of particular interest since the most important goal of cultural policy in Peru is the development and conception of new structures. The aim of the doctorate is to examine the requirements for cultural sponsorship in Germany and to find out whether the system can be transferred to Peru.

For this purpose, the first part of the work should clarify which companies invest in cultural sponsorship at all. In the context of a game theory analysis, it is to be examined under which institutional framework conditions companies contribute to the provision of the public good “culture”.

The management process of cultural sponsorship should then be analyzed from a strategic and operational perspective. The strategic analysis of the cultural sponsorship is prepared by a target analysis and a situation analysis for the cultural institution. The situation analysis must be carried out internally (institutional analysis) and externally (environmental analysis). The facts that are determined in the context of an institutional analysis include the financial situation, the cultural offer and the sponsor-friendly climate. The facts about the environmental analysis include information about companies. The operational analysis of cultural sponsorship includes the planning, organization, implementation and control of all activities involving the provision of money,

Knowledge is a crucial resource for organizations. Controlling and promoting the transfer of knowledge is a complex task that cannot be mastered with the introduction of infrastructures for knowledge management alone. Individual employees or entire departments often prefer to retain knowledge: the knowledge advantage can give employees a power advantage when it comes to personnel policy decisions.

Julia Deike develops a model of the factors that are relevant for knowledge transfer in the sense of new institutional economics. The model and its extensions provide examples of how incentive systems promote but also hinder knowledge transfer. It may be cheaper for the organization to accept knowledge retention than to incentivize full knowledge sharing.

The implementation of change processes is essential for modern, future-oriented companies in today's times of rapid technical change. The constant development of new process and production technologies as well as the uninterrupted progress in information and communication technologies require suitable implementation in the company at ever shorter intervals.

The indisputable and sufficient prerequisite for the successful implementation of a change process is the proactive involvement of a company's employees. However, despite a wealth of different management articles, corporate practice shows that the implementation of change processes is still associated with considerable difficulties for companies. In particular, inadequate knowledge and competence management leads to the failure of a large number of the corporate reorganization projects that have been carried out, measured against the targets set by the company itself.

The research project addresses precisely these reorganization problems and examines the effects of change processes on the knowledge and competence management of companies and their self-organizational units. The aim of the work is to analyze the acquisition and preservation of knowledge and skills of employees in such processes in an economically sound manner.

First, a model based on knowledge management will demonstrate formally and theoretically that a flat hierarchical structure can be superior to a pyramid hierarchical structure. In addition, it will then be shown theoretically that there is a Baysian equilibrium that describes the trade-off between company prospects and wages in reorganization projects. The core hypothesis here is that the popular thesis of wage cuts in poor business prospects is unsustainable from the point of view of knowledge management and is even counterproductive.

The aim is to write a practice-oriented, economically sound work that, within the scope of its examination parameters, makes a practical contribution to the successful implementation of a change project.

The German venture capital market has been experiencing a significant upswing since the mid-1990s, which is characterized by a high inflow of investment-ready capital and a growing number of venture capitalists. An interesting development is the increasing breadth of different types of venture capitalists. Today, in addition to traditional investment companies, there are increasingly corporate venture capitalists, business angels and also management consultancies.

Assuming that the different types of lenders differ in terms of the resources offered and the goals pursued, the question for young companies with a viable business idea is how to optimally select the appropriate venture capitalist.

The aim of the research project is therefore the economic analysis of different types of venture capitalists. The effects of the choice of lender on the gross value added of the young company are examined with the help of two basic strategic approaches, the market-oriented and the resource-based approach. The transaction cost approach as a comparative institutional approach is used to examine the cost effects of the individual types of investors.

In a second step, the hypotheses derived from the results of the economic analysis about the success relationship of the lender selection will be subjected to an empirical analysis on the German startup market. The dissertation project is the first economically and empirically based study on the effectiveness of different types of venture capitalists in Germany.

The world has changed radically. Traditionally oriented companies were of the opinion that they had to develop all the skills that they needed for their business activities internally and that they had to have them themselves. Entrepreneurial activity and operational management take place today under different conditions than a few years ago. Innovation leaps reduce the resource time while increasing the complexity in the market environment. This brings new opportunities, but also new risks for companies.

Companies must respond to changing market conditions with a constant willingness to change. Strategic foresight and strategic management must fulfill certain basic functions: targeted action should be made possible; The corporate goal should be made clear and the stakeholders must be enabled to form a positive future picture of the company.

In bad times, management's focus is mostly on optimization and cost-saving models that are indisputably necessary, but are strategically inadequate. When companies lose their willingness to change, survival becomes more difficult due to the increasingly complex and faster market environment. The initial crisis can quickly develop into a leadership and earnings crisis. The room for maneuver becomes narrower over time.

The pressure of suffering on the entire company is increasing and there seems to be only a radical change as an answer. Simple change or process redesign measures are not profound and comprehensive enough to bring about an improvement in the overall situation of the company. The difficult part of a turnaround is to change everything at once and immediately in order to bring about a sustainable improvement in the company situation as a whole. Turnaround management should be seen as an opportunity to restructure all levels of the company through product, process and structural innovation, so that the company emerges stronger from a crisis.

The aim of the research project is to analyze the different phases of a turnaround, as well as to examine the internal conflicts and their changes in each phase. The focus of the work is the influence of management methods on the parameters of a turnaround as well as the optimal distribution of resources during a turnaround.

In business theories of organizational change, economic organizations are often seen as precisely controllable and formable units. It is typically assumed that the organizational decision-makers in reorganization processes set clear objectives, know the means-purpose relationships necessary to achieve specified objectives and have sufficient control over the design parameters. In the present research work, this idea is opposed to a different, evolutionary perspective. According to this view, economic organizations are complex systems that operate in far more complex peripheral systems. The decision-makers who significantly shape the interaction of the organization with the environment are considered to be of limited rationality.

The methodological approach in this research project is based on abstract evolution theory, which is based on the general principles of variation, selection and retention. The interaction of these principles leads to evolutionary processes that can basically be analyzed at different levels of the organization. The analysis of the internal evolution of organizations connects the different levels of observation: On the one hand, the organization as a whole is subject to a selection pressure on the market. Organizations whose added value cannot adequately meet the needs of their stakeholders run the risk of being displaced by more economically efficient organizations. On the other hand, organizations themselves are versatile, ie internal evolution at the level of the individual organization is possible. Here, learning and change processes within the organization are interpreted as evolutionary processes.

The work is divided into three parts:

In the first part, the biological evolution theory of a detailed investigation is examined with regard to the possibilities and limits of analogy formation for the evolution of organizations. The analysis is understood in the sense of a heuristic that identifies relevant problems and questions for the development of organizations and thus generates a deeper understanding of the concept of evolution in general and of the specific requirements for an economic theory of evolution. Structural similarities and differences between biology and economics are revealed. In addition, methodological questions of the theory of evolution are discussed and an overview of the criticism of the formation of biological analogies and metaphors in economics is given.

The second part deals with selected evolutionary contributions in economics and partly in sociology. On the one hand, the historical analysis should convey the range of different evolutionary concepts and explanatory goals, on the other hand it leads the reader thematically from general evolutionary ideas about the theory of enterprise and population-ecological approaches in organizational theory to the first approaches to the evolution of individual organizations, which are discussed in more detail become. In the appendix, fundamental concepts of evolutionary game theory are presented as formal-analytical instruments for analyzing the behavior of restricted rational actors.

The third part deals with the development of an approach to the internal evolution of organizations. The main goal is to bridge the gap between the adaptation and the selection perspective. The internal development of an organization is traced back to evolutionary principles, whereby intentionally acting, rational rational decision-makers are conceptually integrated into a selection perspective. A central explanation goal in this context is the role of the organizational decision-maker in the evolution process, which is defined within the framework of a homeostatic control mechanism. A crucial task results from the previously developed knowledge that evolution works simultaneously and interdependently on different system levels.

In the past, banks have focused their risk management primarily on market and credit risks; operational risks only played a minor role. However, as a result of the new legislation initiated by Basel II, which requires banks to hold capital for operational risks for the first time, these risks have recently become more important. In addition to the new legislation, major defaults, such as the fraud case at Allied Irish Bank's US subsidiary in 2001, also contributed to this new focus. However, no established standard for dealing with operational risks has yet emerged in practice. Similar to practice, the theory of these risks is just beginning.

In this work the essential aspects of the management of operational risks are to be examined. The topics covered include why banks should manage risks at all, how operational risks should be categorized, which measurement methods can be used sensibly and which requirements Basel II places on the banks. The organization of risk management and the integration of all risks from an overall bank perspective are also discussed. The focus of the work deals with the question of what types of operational risks banks hold themselves and which ones they should transfer to insurance companies or the capital market.

To answer this question, a principal-agent model with asymmetrical information distribution is set up. Risks can lead to expected, unexpected or catastrophic losses. Depending on the type of loss, the parties have different levels of information about these risks: adverse selection and moral hazard can occur. As part of this model, the optimal holder of the individual risks is derived from this, so that recommendations for action can be generated for the management of operational risks.

Shared services represent an organizational approach in which an organizational unit provides services for several internal customers. A shared service center is a unit of the primary organization, in which non-local and non-business-specific support tasks are concentrated and which has function-related decision-making powers, for example for accounting, information technology or personnel.

By establishing shared service centers, redundancies can be eliminated that have arisen in companies through the establishment of largely independent sub-functions in various business areas, and increasing economies of scale and synergies can also be realized in support processes. In addition, the business areas are freed from carrying out support tasks and can concentrate more on their core tasks. In contrast to the classic central areas, shared service centers are managed as economically and / or legally independent organizational units with an explicit customer focus. Business units only have to pay for the services actually used and can at least partially also obtain services from third-party companies.

Shared services have not yet been scientifically investigated according to their importance. The goal of this doctoral project is the economic analysis of the shared services concept. Shared services should be differentiated from related concepts and described in their essential forms, goals, areas of application and design parameters. Using the microeconomic tools, it should be clarified why this design alternative is chosen, where its advantages and disadvantages lie and how inherent conflict situations can be influenced so that competing interests in interdependent decision-making situations do not prevent the organizational goal from being achieved.

Since the beginning of industrialization, not all steps necessary for this have been carried out in a company itself, but external companies have been entrusted with the implementation of certain subtasks. It is precisely this trend that has expanded considerably due to the rapid increase in information and communication technology. The individual companies are increasingly restricting themselves exclusively to certain production steps or sub-products and outsourcing the other tasks to external companies. The assignment of upstream or downstream work steps to external companies is also referred to as outsourcing. This is an artificial word that was formed from the terms outside resource using.

In this context, a distinction is made between the terms outsourcing and subcontracting. Subcontracting describes the situation in which the client orders goods or services from a supplier that he could manufacture himself and, to a lesser extent, also produces himself. With outsourcing, on the other hand, the client has no way of creating the product himself, but has to procure the entire production volume from a supplier. The question now arises as to which implications are associated with the choice for a company to produce a good themselves, to commission a subcontractor or to outsource the production. Both the direct and the indirect, strategic effects play an important role in answering this question.

The focus of this work should be on the strategic impact associated with subcontracting or outsourcing. For this, it is necessary to take into account the changes that result from the outsourcing of upstream or downstream production processes in the investigation. The focus is not only on the effect of outsourcing on competitors, but also on the appropriate design of inter-company relationships. Against the background of subcontracting and outsourcing, the aim is to investigate which measures have a strategic effect on competitors and what they are like. To do this, it is necessary to take the adjustments into account as part of the inter-company incentive and control mechanisms.

It is an undisputed phenomenon that knowledge is exchanged or unwanted between companies. These so-called knowledge “spillovers” influence, for example, the incentives for companies to invest in expensive R&D activities. A common assumption is that spillovers inhibit innovation, as companies cannot acquire the full return on their investments. A much-discussed solution to this problem of external effects is the formation of research joint ventures with simultaneous competition in product markets. In the present research project, however, it is established that the arguments used for collaborative research efforts between companies also apply to mergers. This pushes the work into one line of argument,

Based on the observation of numerous large company mergers, the work focuses on the special features of mergers for the phenomenon of knowledge spillovers and for the incentives to invest in costly R&D projects. It tries to analyze some of the possible mechanisms on the basis of a simple model of patent competition with spillover effects.

At the beginning of this theoretical-conceptual work, an attempt is made to economically characterize the “knowledge” good. Then the phenomenon of knowledge spillovers and its implications for incentive structures in companies is examined. Before the main part deals with the spillovers in connection with mergers, a brief overview of the literature is given on possible explanations of horizontal business combinations and their importance for spillovers and innovation activities.

In classic economic analysis it is assumed that individuals have consistent preferences over time. However, various psychological experiments and studies prove that the preferences of the individuals are inconsistent in time: there is a conflict between the long-term plans and the short-term decisions of the individuals. As a result of a person's competing goals, problems of self-control and motivational distortions arise. The individual behaves myopically, that is, it places much more value on short-term satisfaction of needs and not on long-term behavior plans. A commitment to a long-term behavioral strategy would improve its utility. The individual could try

The aim of this research project is to discuss various attachment and motivation options for individuals with a lack of self-discipline from an economic perspective and to deepen and develop them within the framework of the previous psychological and economic literature. The focus of the work is on the optimal motivation of employees.

As a result of changing competition requirements, companies are increasingly forced to break new ground in the design of their internal organization in order to ensure that their employees' human capital is used more effectively. An increased delegation of decision-making competencies is of crucial importance: The greater involvement of employees in the decision-making processes should not only promote their willingness to perform and initiative, but also improve their incentives to invest in human capital and their knowledge within the framework of Bring decision making.

The aim of the work was to discuss the problem of the optimal distribution of decision-making competences from an economic perspective and to deepen and develop the knowledge gained in the previous literature. The main focus was on answering the increasingly important question for companies, how they can use and develop the human capital and specific knowledge of their employees more effectively by appropriately distributing decision-making skills.

The theoretical basis of the modeling is the economic theory of incomplete contracts. The focus is therefore on the limited rationality of decision-makers and relationship-specific investments that are necessary for increased value creation.

Over the past few decades, executive pay in western industrialized countries has grown at an above-average rate compared to general wage developments. One of the main drivers of this development was the increasing use of stock options. Until the 1990s, these were primarily an American phenomenon. In the meantime, however, they are generally on the rise in Europe. German companies are increasingly forced to deal with this challenge to their traditional incentive systems.

Various reasons can be given for the use of stock option plans in companies: On the one hand, as a form of performance-based payment, stock option plans can reduce the potential conflict of interest between shareholders and senior executives. By linking the income of executives to the share price of their company, management can focus on the principles of "shareholder value". Stock option plans can also help encourage risk-averse executives to adopt unsafe but, as expected, profitable projects. Furthermore, one can use stock options for signaling and selection in executive recruitment in order to attract managers with preferred entrepreneurial skills.

Because of these opportunities, stock option plans appear to be incentive-efficient remuneration systems. However, like all variable compensation systems, stock option plans also generate additional costs because they transfer risk from the potentially risk-neutral principal to the likely risk-averse manager. This leads to an inefficient risk distribution. This problem is exacerbated by the fact that, in contrast to internal incentive plans, stock options include other risks that cannot be directly influenced by the individual manager. It is therefore likely that executives will value stock options at significantly less cost to the company. This questions the incentive efficiency of this instrument

The aim of this research project is to analyze stock option plans in terms of their efficiency using financial and game theory approaches. It is planned to support conceptual insights with the help of an empirical or experimental investigation.

Since the beginning of the 1980s, corporate cooperation in the area of ​​research and development (R&D) has been of particular interest, which is reflected in a significant increase in the number of agreements between companies regarding coordination / cooperation in the area of ​​R&D. There are a large number of well-known and frequently mentioned motives for these cooperations, such as sharing development costs, facilitating the standardization of technological systems, quicker reactions to shorter product cycles and applying for government subsidies.

In addition to these motives, companies that cooperate at the R&D level can also make an effort to reduce the mutual competitive pressure. Even if R&D cooperation is often assigned a pre-competitive status, the cooperation at the upstream R&D level can serve to limit (possible) competition. The work presented here is intended on the one hand to examine the restriction of competition between companies already represented on the market, and on the other hand to examine whether collaborations at the R&D level can be used to restrict competition at downstream levels by making it difficult for new entrants to enter the market ,

Load more
GEABA

German Economic Association of Business Administration

Founded in 2000, the German Economic Association of Business Administration (GEABA) e.V. is the first of its kind.The purpose of the association is to promote the application and further development of the instruments and methods of information economy, game theory, empirical economic research, experimental studies, new institutional economics or economic psychology developed in microeconomic theory to economic and especially business issues. The association also offers a forum for an exchange of knowledge between business economists and economists.

Find out more

Teaching

We can explain theory –
But we can’t understand it for you.

We provide students with the latest research and a firm understanding of the theories behind decision making and strategic thinking, for practical applications.

Course Content/Structure

Imagine young children play a game under the supervision of adults. If the adults leave the room, would children keep on playing the game according to the rules or do anything else? How would you expect the behaviour of children to change if they were told that an invisible ghost is watching them? Clearly, many aspects – rational or irrational ones – have an impact on our motivation to do certain tasks, sometimes even ghosts! What other aspects, besides ghosts, affect our behaviour? Do we act rationally? And how can we motivate others to do things we want to be done?

In this course on "Individual Decision Making and Motivation", you will learn important insights about the behaviour of others, but also how you act – in business situations as well as in everyday life:

  • On a theoretical level, the course provides an economic-psychological approach for understanding individual decision making by integrating important contributions from economics, psychology and sociology. In particular, we focus on current research in behavioural economics and discuss the limitations of actual behaviour to rational decision making due to cognitive and motivational distortions. We illustrate these theoretical insights with several case studies from different areas: from a management perspective we discuss employees behaviour in firms such as Lincoln Electric, Du Pont, or JP Morgan, as well as in occupational groups such as the US air traffic controllers, or the English miners; from a sociological perspective we will have topics about Baby boomers, Gen X & Me; from a psychological perspective about how we play Blackjack, or how mood influences the choice of our luggage; from a biological perspective we consider the rationality of chimpanzees, or the primacy effect of turtles; and from a historical perspective we have illustrations about Hebrew slaves in ancient Egypt, book printing in the 16th century in Korea, or leaders in the American Civil War.
  • On a practical level, the course focuses on current research in experimental economics. Here, we use the experimental results from the literature in this field to illuminate the validity of our theoretical predictions. Moreover, you will use classroom experiments to test and experience your own behaviour as well as that of your classmates. The topics of these experiments range from the influence of emotions on decision making over the relation between overconfidence and success to why real leisure matters.

Although individual decision making is in the centre of our discussion in this course, we will extend this perspective by considering individual behaviour in the context of social interactions:

  • First, we consider individual decision making in isolation, taking the environment in which the individual acts as given. In this part, we follow the literature on behavioural economics and divide the overall decision making process into two sub-processes: The judgment process which refers to the perception and interpretation of the environment; and the actual decision process which refers to the choice of an activity.
  • Second, we place the individual into an organisation and consider its individual decision making in a situation in which the consequences of its own behaviour are also affected by others with whom it interacts.  Here, we follow the literature on managerial economics and discuss the behavioural consequences on individual decision making if the individual aims are not completely in line with each other. As a consequence of the resulting motivational problems, we then discuss possibilities how to align individual decision making by appropriate incentive setting.

During this course you will learn several analytical tools relevant not only for this course but for your further studies. These are the psychological concepts of Motivation Theory and Attribution Theory, the economic theories of Normative and Subjective Decision Making (Von-Neumann-Morgenstern Utility Theory, Prospect Theory, Regret Theory, and Disappointment Theory) as well as insights into the Economics of Information, Contract Theory, Incentive Theory and Game Theory.

Readings

Jost, P.-J.: The Economics of Motivation and Organization: An Introduction, Edward Elgar, Cheltenham, 2014

Course Content/Structure

Organizations belong to the few things we take for granted in our lives: Most people see the light of the day in a hospital, grow up in a family, start nursery at the age of three, school at the age of six and later, spend the twilight years of their life in an old people’s home and are buried with the blessing of the church. We normally do not ask any questions about these organizations: how the hospital manages to get the gynaecologist to the place of our birth or how the undertaker organizes our funeral is seldom of any interest to us. We only ever really take an interest in organizations when they go wrong; at the doctor’s, for example, when we have to wait too long or at the post office when the queue is too long just before closing time, or when we are buying the latest make of car and the delivery time is three years.

In this course on "Interdependent Decision Making and Coordination", you will learn important insights about how to coordinate the interactions between members of an organization in such a way that their individual activities actually serve the common organizational goal and that their cooperation runs as smoothly as possible. As the introductory examples suggests, our discussions are not restricted to the analysis of the organizational design of firms but also apply to other organizations such as families, churches or hospitals:

  • On a theoretical level, the course provides a comprehensive unified approach for understanding interdependent decision making by integrating important contributions from different fields of economics. In particular, we focus on current research in organizational economics and discuss the organizational design as a function of the characteristics of the underlying interactions. We illustrate these theoretical insights with several case studies from different areas: from a management perspective we discuss coordination in firms such as McDonalds, Uber, Facebook or Amazon, as well as in industries such as the US motion-picture industry or the US aerospace production industry in the 20th century; from an institutional perspective we focus on non-profit organizations, for example, the German Parliament and its vote for Bonn versus Berlin, the conservative churches in the U.S. and its growth; or the market for prisoners of war in the 17th century.
  • On a practical level, the course focuses on current research in experimental economics. Here, we use the experimental results from the literature in this field to illuminate the validity of our theoretical predictions. Moreover, you will use classroom experiments to test and experience your interdependent behaviour in the interaction with your classmates. The topics of these experiments range from the dark side of friendship over women’s ability to multitask to how to price Apple Maps.

In the centre of our discussion are systems in which several individuals interact with each other in order to achieve a certain common goal. These individual decision makers are in some way connected with each other such that the coordination of their individual behaviour towards the common goal becomes essential. We follow the conceptual framework of institutional economics and discuss three different forms how to coordinate:

  1. Market coordination, where individual activities are coordinated via the price mechanism. Here we follow the basic microeconomic theory and discuss the functioning of market as well as different sorts of market failures.
  2. Interorganizational coordination, where individual activities are coordinated by long-term contracts between autonomous partners. Here we follow the transaction cost theory and discuss several factors which determine the usefulness of this coordination mechanism.
  3. Hierarchical coordination, where individual activities are coordinated by a central unit and coordination takes place via commands. Here we follow managerial economic theories and integrate the various coordination instruments used within firms into our analysis.

During this course you will learn several analytical tools relevant not only for this course but for your further studies. These are the concepts of Pareto Efficiency and the Stakeholder Approach, the Transaction Cost Theory and General Equilibrium Theory as well as insights into the Theory of the Firm, the Property Rights Theory, Incentive Theory and Game Theory.

Literature

Jost, P.-J.: The Economics of Organization and Coordination: An Introduction, Edward Elgar, Cheltenham, 2011

Course Content/Structure

Suppose you are playing tennis. Your rival is at the net and had just volleyed to you on the baseline. You are about to hit a passing shot. Should you play down-the-line or crosscourt? Conventional wisdom favours the down-the-line shot, because the ball has a shorter distance to travel to the net and so your rival has less time to react. However, if you would use this shot all the time, your rival would confidently come to expect it and prepare for it. So the shot would not be so successful. To improve the success of the down-the-line passing shot, you have to use the crosscourt shot often enough to keep your rival guessing on any single instance.

This course on "Fun and Games" will teach you how to think strategically in situations in which you interact with others. Strategic thinking, however, is not only important in playing tennis; it is prevalent in daily life at work and at home. Managers and corporations must use competitive strategies to survive in the market. Parents and kids bargain for pocket money or the assignment of house work. In all these situations it is better to be a good strategist than a bad one. This course aims to help you to improve your skills at discovering and using effective strategies. Good strategic thinking is an art and the science of strategic thinking is called Game Theory:

  • On a theoretical level, the course provides an introduction into the basics of Game Theory. In particular, we focus on the basics principles of strategic thinking and apply these principles to different interdependent decision making situations. We illustrate these theoretical insights with movies, case studies and applications from different areas: Movies we will see and interpret during this course are, for example, ′Indiana Jones and the last Crusade′, ′Memento′, ′Princess Bride′, Stanley Kubrik’s ′Dr. Strangelove′, Woody Allen’s ′Manhattan Murder Mystery′, or ′A Rebel without Cause′; case studies come from sport, culture, philosophy, and history such as Lance Armstrong and doping in professional sport, Galileo Galilei and the interrogation by the inquisition, Tosca and the bargain with Scarpia, Pascal’s wager and the existence of God, the Invasion of Normandy, Sherlock Holmes and his final problem, the Monday Demonstrations in Leipzig, or Hernán Cortés’ burning bridges; and applications to which we apply our insights are, for example, moral courage and the problem of helping, the parable and dilemma of the Good Samaritan, drug dealers and patrols on the beat, couples and their relationships, the war of attrition and the timing of capitulation, or civil unrest and the coordination for revolution.
     
  • On a practical level, the course focuses on current research in experimental economics. Here, we use the experimental results from the literature in this field to illuminate the validity of our theoretical predictions. Moreover, you will use classroom experiments to test and experience your interdependent behaviour in the interaction with your classmates. The topics of these experiments range from the sound of silence over tolerating laziness to why gambling the night away.

In the centre of our discussion in this course are multi-person decision making situations in which the outcomes depend on your action and on the actions of others. In game theory such a situation is called a game and the actors in such a game are called players. To classify the variety of games we consider the following two basic criteria:

  1. The degree of conflict: Whenever a group of individuals interacts in a particular situation, individual preferences of these group members may be in conflict. In the tennis game, for example, the players’ interests are strictly opposite. When meeting a friend, on the other hand, there is no conflict of interest. In the first case, we speak of games of pure conflict, in the latter one about games of pure cooperation. Between them are games of mixed interests.
     
  2. The degree of behavioural uncertainty: According to this criterion, players can either be determined, unpredictable or ambiguous in their behaviour. An example for the first case arises in team games when team members have mutual interests. The tennis game is an example where players want to be unpredictable in their play. And players are ambiguous in their behaviour if there are several possible ways how they could optimally behave.

Given these two dimensions, we discuss the following classes of games in our course: Prisoners’ Dilemma Games, where interests are mixed and players’ behaviour is determined; Dis-coordination Games, where players don’t want to coordinate their behaviour so that unpredictability is important; Zero-sum Games, where interests are strictly opposite so that players either win all or lose everything; Battle-of-Sexes Games, where players have mixed interests and behaviour is ambiguous; and Coordination and Anti-coordination Games, where players have common interests for either getting together or stepping aside and their behaviour is ambiguous.

During this course you will learn several analytical tools relevant not only for this course but for your further studies in microeconomics, social sciences, or managerial economics. These are the Nash Equilibrium concept of Nobel laureate John Nash, the Sub-game Perfect Equilibrium concept of Nobel laureate Reinhard Selten, the Min-max Equilibrium concept of John von Neumann, the Mixed-strategy Equilibrium interpretation of Nobel laureate John Harsanyi, or the Focal Point concept of Nobel laureate Thomas Schelling.

Readings

Jost/Weitzel (2007): Strategic Conflict Management: A Game-Theoretical Introduction, Edward Elgar

Course Content/Structure

Imagine you are pilot of a jet fighter and following a plane that has been hijacked and now changed its direction towards a football stadium crowded with thousands of people. If you shoot a missile at the plane you will kill the innocent passengers of the hijacked plane but save the lives of thousands of football spectators. What do you do? And does your judgement change if the prime minister orders you to either do so or let the plane go? Does it have an impact if your family is either in the stadium or in the hijacked plane?

In this course on "Ethical Decision Making and Behavior", you will learn important insights about the ethical behavior of others, but also how you morally act – in business situations as well as in everyday life:

  • On a theoretical level, the course provides an economic-psychological approach to understanding ethical decision making by integrating important contributions from economics, psychology and sociology. In particular, we focus on several determinants of ethical behavior and discuss the limitations of actual ethical behavior due to cognitive, motivational and institutional distortions.
     
  • On a practical level, the course focuses on current research in Behavioral Ethics. Using the determinants of ethical behavior as topics for your seminar papers, it will be your task to summarize the relevant literature in experimental economics in this area and to write a literature overview on your topic. As starting point for your literature survey, we distribute seminal readings up-front. Moreover, you will test and experience your own ethical behavior as well as that of your classmates by a classroom experiment.

Although individual ethical decision making is in the center of our discussion in this course, we will extend this perspective by considering ethical behavior also in the context of social interactions:

  • First, we consider the personal and situational determinants of ethical decision making, taking the environment in which the individual acts as given. In this part, we follow the literature on behavioral economics that divide overall individual decision making into the judgment and the decision making process.
     
  • Second, we consider ethical decision making in a situation in which the individual is interacting with others.  Here, we follow the literature on behavioral economics that discusses the strategic aspects of interdependent ethical decision making.

During this course you will learn several analytical tools relevant not only for this course but for your further studies. These are the psychological concepts of Motivation Theory and Attribution Theory, the economic theories of Normative and Subjective Decision Making as well as insights into the Economics of Information, Contract Theory, Incentive Theory and Game Theory.

Literature

Selected readings will be provided.

Course Content/Structure

Suppose your son asks for visiting a fast food restaurant to eat a hamburger. You are nutrition-conscious but your son threatens to run away from home if he gets no hamburger. Suppose you and your son are both rational and he asks you only once. What would you do? And does your decision change, if you believe that your son is selfdestructive with some small possibility so that he actually would run away if he gets no hamburger although he is actually rational? And does your decision change, if, in addition, this interaction with your possibly self-destructive son is repeated every day, say for the next two years?

This course on "Game Theory" will teach you how to think strategically in situations in which you interact with others. Strategic thinking, however, is not only important in the hamburger case; it is prevalent in daily life at work and at home. Take, for example, a situation where you as the manager of the only supermarket in town are facing potential entrants. To discourage entry you make your market look unattractive by pricing below marginal costs.

The logic of such a predatory pricing strategy then is similar to your son’s reputation building strategy: If potential entrants are unsure about your profits in the market you can build up a reputation for being a tough incumbent by fighting entry through predatory pricing although you are a soft incumbent who loses with this strategy. This course aims to help you to improve your skills in discovering and using effective strategies. Good strategic thinking is an art and the science of strategic thinking is called Game Theory:

  • On a theoretical level, the course provides an introduction into Game Theory. In particular, we focus on the different solution concepts that are useful to understand the strategic behaviour in a broad range of possible interdependent decision situations. We illustrate these theoretical insights with movies, case studies and applications from different areas: Movies we will see and interpret during this course are, for example, ′A Beautiful Mind′, ′The Dark Knight′, ′The Good, the Bad, and the Ugly′, ′Ransom′, Marx’s Brothers ′Go West′, ′Swingers′, or ′Pretty Woman′; case studies come from politics, science, and history such as the Extinction of the Woolly Mammoth; Operation Overlord and the D-Day, 6 June 1944; Trench Warfare in World War I; EU‘s Immigration Politics; or the Greek Crisis, 2015; and applications to which we apply our insights are, for example, the tragedy of the commons; exploiting first-mover advantages; selling ice cream on a beach; being first in tournaments; couples that mistake each other mutually; entrepreneurship and capital structure; or studying at WHU.
  • On a practical level, the course focuses on the application of the different solution techniques to specific interdependent decision situations. Here, we use the solution concepts introduced in the theoretical parts to illustrate the predictive power of game theoretic reasoning in various examples. Moreover, you will use applications to test and experience your own strategic thinking together with other classmates.

In the centre of our discussion in this course are multi-person decision making situations in which the outcomes depend on your own action as well as on the actions of others. In Game Theory such a situation is called a game and the actors in such a game are called players, and a player has the move if he is called to act. To classify the variety of games it is useful to consider the following two basic criteria:

  1. Timing of moves: According to the timing of the players' moves, games can either be simultaneous or sequential. In the first case, all players choose their actions without knowing how the others have acted or will act. Such games are called simultaneous-move games. In the second case, at least one of the players knows when acting what another has done before. Such a game is called a sequentialmove game.
     
  2. Degree of private information: Private information arises in those situations in which at least one player knows more about the decision making situation than another player. If this is the case, the game is one of incomplete information. Otherwise, the game is said to be of complete information.

Given these two dimensions, we discuss the following four classes of games in our course: Simultaneous-move Games of Complete Information, Sequential-move Games of Complete Information, Simultaneous-move Games of Incomplete Information, and Sequential-move Games of Incomplete Information.

During this course you will learn several analytical tools relevant not only for this course but for your further studies in microeconomics, social sciences, or managerial economics. These are the Nash Equilibrium concept of Nobel laureate John Nash, the Sub-game Perfect Equilibrium concept of Nobel laureate Reinhard Selten, the Bayesian Nash Equilibrium concept of Nobel laureate John Harsanyi, and the Perfect Bayesian Nash Equilibrium concept of not-yet Nobel laureates David Kreps and Robert Wilson.

Readings

Jost, Weitzel (2007): Strategic Conflict Management: A Game-Theoretical Introduction, Edward Elgar

Gibbons: A Primer In Game Theory, Princeton University Press, 1992

Course Content/Structure

Suppose you are the CEO of a German bank. Since Josef Ackerman is your architype of a successful banker you also want to achieve a 25% return on equity as Deutsche Bank some years ago. Although you know that such a high Return on Equity usually comes with more external financing this does not bother you: You remember your corporate finance lecture at university and Modigliani and Miller’s Theorem that the way a firm is financed is absolutely irrelevant as long as capital markets are competitive and efficient, and when there are no taxes and bankruptcy costs. Unfortunately, a colleague of you suggested to read the “Bankers’ New Clothes” by Hellwig and Admati. Their core message is that banks should be required to have more equity, a view which stands in direct contrast to become Mr. 25%. So what should you do? What happens, if Modigliani and Miller’s assumptions are not met in reality?  

This course on "Contract Theory" aims to help you to improve your skills in discovering the essential economic drivers not only for answering this question but also similar ones in a variety of different situations: How should government agencies set rules and regulations towards the purpose of reducing environmental pollution or avoiding tax evasion? What is the optimal design of contracts with suppliers to ensure high quality pre-products? How should parents incentivize their children to tidy up their room?

The common element of all these situations is that there are at least two actors involved, a principal and an agent. The principal has a project but no time, and the agent has time but no project. To generate the project's surplus they both cooperate and the principal delegates the project to the agent, who then acts on behalf of the principal. If the agent is motivated to act in his own best interest rather than that of the principal, the principal then has to design a "contract" that motivates the agent to act in her interest:

  • On a theoretical level, the course provides an introduction into Contract Theory. In particular, we focus on the different contractual solution concepts that are useful to understand optimal contracting in a broad range of possible principal-agent relationships. We illustrate these theoretical insights with case studies and applications from different areas of finance: Case studies on financial markets are, for example, the stickiness of credit card rates, competitive market making in a limited order market, or the pricing of initial public offerings; and applications in corporate finance to which we apply our insights are, for example, venture capital financing, credit rationing, or common stock repurchases.
     
  • On a practical level, the course focuses on the application of the different solution techniques to specific contractual problems in corporate finance. Here, we use the solution concepts introduced in the theoretical parts to illustrate the predictive power of contract theoretic reasoning in various examples. Moreover, you will use applications to test and experience your own theoretical thinking together with other classmates. The topics of these applications range from the use of collaterals as screening device in loan contracts over optimal debt contracts and costly state verification to the use of equity stakes as a signal of creditworthiness.

Contract Theory would be boring if both the principal and the agent had identical information about all relevant aspects in their relationship: The optimal contract design by the principal in this situation would be simple - "If you do the task as I would do, I will pay you a reward, otherwise you will get nothing" - and the principal would perfectly control the agent and induce his actions to be what she would like to do herself. Therefore, Contract Theory is only interesting if the agent has some kind of private information. This private information can be of two types and, therefore, induce two different contractual problems:

  1. Adverse selection: In some situations, the agent is better informed than the principal about his personal characteristics, e.g. his abilities or valuations. These situations are called principal-agent relationships with hidden characteristics and the resulting problem for the principal is called adverse selection. Such a problem might occur, for example, in a situation in which an entrepreneur needs outside financing to undertake a new project. If lenders cannot directly tell whether the project is good or bad, an interest rate tailored to an average project quality tends to attract only an entrepreneur with a bad project because he is more likely to default on his loan and is therefore less affected by an entrepreneur of a good project. But this selection would be adverse to lenders’ interests.
     
  2. Moral hazard: In other situations, the agent can take an action unobserved by the principal or he receives information during the project unknown to the principal. These situations are called principalagent relationships with hidden action, respectively hidden knowledge, and the resulting problem for the principal is called moral hazard. In the example above, suppose the project’s success depends on whether the entrepreneur’s cash is invested in the project or used for consumption. If lenders cannot verify this decision, the entrepreneur might have an incentive to misbehave when the private benefits from consumption exceed the reduced success probability of the project. In this case, a lender will not grant such a loan and we again have credit rationing.

Given these two principle contractual problems, we discuss the following four classes of principal-agent relationships in our course: Adverse selection and Screening, where the uninformed principal offers a contract; Adverse Selection and Signaling, where the informed agent signals his private information before the principal offers the contract; Moral hazard and Single Agency, where the principal contracts with only one agent; and Moral hazard and Multi Agency, where the principal contracts with a group of interacting agents.

During this course you will learn several analytical tools relevant not only for this course but for your further studies in finance. Besides several concepts of incentive theory such as Moral Hazard, Adverse Selection, Risk Premium, or Information Rent, you learn drivers for the optimal use of incentive instruments such as piece rates, profit sharing, or performance measurement. In addition, you get familiar with several concepts of game theory, for example, the Nash Equilibrium concept, the Sub-game Perfect Equilibrium concept, or the Perfect Bayesian Nash equilibrium concept.

Readings

Jost/Weitzel (2007): Strategic Conflict Management: A Game-Theoretical Introduction, Edward Elgar

Bolton/Dewatripont (2005): Contract Theory, MIT Press

Laffont/Martimort (2009): The theory of incentives: the principal-agent model, Princeton

Salanié (2005): The economics of contracts: a primer, MIT Press

Course content/structure

Game theory is the study of multi-person decision problems. Such problems arise frequently in your PhD-thesis being it in management or economics, for example, when you write in

  • in finance, and your thesis is about how entrepreneurs seek funding of their projects
  • in marketing, and your thesis is about the optimal degree of mass-customization for products
  • in production, and your thesis is about the design of a joint platform strategy for products
  • in accounting, and your thesis is about the differences between a single auditor or joint auditor system
  • in strategy, and your thesis is about how to make sure that a firm’s competitive advantage is persistent over time
  • in organization, and your thesis is about the structuring of a new service center
  • in leadership, and your thesis is the benefits of promotion tournaments to motivate workers
  • in sports, and your thesis is about the consequences of the three-point rule on the offensiveness of football teams
  • ...

This course is designed to introduce game theory to those who will later think more rigorously about the game-theoretic implications underlying the topic of their PhD-thesis. We do so by emphasizing the exposition to management applications of the theory at least as much as the pure theory itself, for three reasons. First, the applications help teach the theory; formal arguments about abstract games also appear but play a lesser role. Second, the applications illustrate the process of model building — the process of translating an informal description of a multi-person decision situation into a formal, game-theoretic problem to be analyzed. Third, the variety of applications shows that similar issues arise in different areas of management, and that the same game-theoretic tools can be applied in each setting. 

In the centre of our discussion in this course are multi-person decision making situations in which the outcomes depend on the actions taken by several actors. In Game Theory such a situation is called a game and the actors in such a game are called players, and a player has the move if he is called to act. To classify the variety of games it is useful to consider the following two basic criteria:
Given these two dimensions, we discuss the following four classes of games in our course: Simultaneous-move Games of Complete Information, Sequential-move Games of Complete Information, Simultaneous-move Games of Incomplete Information, and Sequential-move Games of Incomplete Information.

  1. Timing of moves: According to the timing of the players' moves, games can either be simultaneous or sequential. In the first case, all players choose their actions without knowing how the others have acted or will act. Such games are called simultaneous-move games. In the second case, at least one of the players knows when acting what another has done before. Such a game is called a sequential-move game.
  2. Degree of private information: Private information arises in those situations in which at least one player knows more about the decision making situation than another player. If this is the case, the game is one of incomplete information. Otherwise, the game is said to be of complete information.

During this course you will learn several analytical tools relevant not only for this course but for your further PhD-studies. These are the Nash Equilibrium concept of Nobel laureate John Nash, the Sub-game Perfect Equilibrium concept of Nobel laureate Reinhard Selten, the Bayesian Nash Equilibrium concept of Nobel laureate John Harsanyi, and the Perfect Bayesian Nash Equilibrium concept of not-yet Nobel laureates David Kreps and Robert Wilson.

Course content/structure

Contract theory is the study of hierarchal relationships between a principal and an agent. Such relationships arise frequently in your PhD-thesis being it in management or economics, for example, when you write in

  • in finance, and your thesis is about how entrepreneurs seek funding of their projects
  • in taxation, and your thesis is about how to avoid tax evasion
  • in law & economics, and your thesis is about how to ensure law enforcement
  • in accounting, and your thesis is about the system of performance measurement
  • in production, and your thesis is about to contract in a supply chain with suppliers
  • in organization, and your thesis is about allocate task between different organizational units
  • in leadership, and your thesis is the motivation of workers
  • in regulation, and your thesis is about how to avoid environmental pollution
  • ...

This course is designed to introduce contract theory to those who will later think more rigorously about the contractual problems underlying the topic of their PhD-thesis. We do so by emphasizing the exposition to management applications of the theory at least as much as the pure theory itself, for three reasons. First, the applications help teach the theory; formal arguments about abstract principal-agent relationships also appear but play a lesser role. Second, the applications illustrate the process of model building — the process of translating an informal description of a principal-agent relationships into a formal, contract-theoretic problem to be analyzed. Third, the variety of applications shows that similar issues arise in different areas of management and economics, and that the same contract-theoretic principles can be applied in each setting.
Contract Theory would be boring, if both the principal and the agent had identical information about all relevant aspects in their relationship: The optimal contract design by the principal in this situation would be simple - "If you do the task as I would do, I pay you a reward, otherwise you get nothing" - and the principal would perfectly control the agent and induce his actions to be what she would like to do herself. So Contract Theory is only interesting, if the agent has some kind of private information. This private information can be of two types and, therefore, induce two different contractual problems:

  1. Adverse selection: In some situations, the agent is better informed than the principal about his personal characteristics, e.g. his abilities or valuations. These situations are called principal-agent relationships with hidden characteristics and the resulting problem for the principal is called adverse selection. Such a problem might occur, for example, in a situation in which an entrepreneur needs outside financing to undertake a new project. If lenders cannot directly tell whether the project is good or bad, an interest rate tailored to an average project quality tends to attract only an entrepreneur with a bad project because he is more likely to default on his loan and is therefore less affected by an entrepreneur of a good project. But this selection would be adverse to lenders’ interests.                                                                              
  2. Moral hazard: In other situations, the agent can take an action unobserved by the principal or he receives information during the project unknown to the principal. These situations are called principal-agent relationships with hidden action, respectively hidden knowledge, and the resulting problem for the principal is called moral hazard. In the example above, suppose the project’s success depends on whether the entrepreneur’s cash is invested in the project or used for consumption. If lenders cannot verify this decision, the entrepreneur might have an incentive to misbehave when the private benefits from consumption exceed the reduced success probability of the project. In this case, a lender will not grant such a loan and we again have credit rationing.  

Given these two principle contractual problems, we discuss the following four classes of principal-agent relationships in our course: Adverse selection and Screening, where the uninformed principal offers a contract; Adverse Selection and Signaling, where the informed agent signals his private information before the principal offers the contract; Moral hazard and Single Agency, where the principal contracts with only one agent; and Moral hazard and Multi Agency, where the principal contracts with a group of interacting agents.
During this course you will learn several analytical tools relevant not only for this course but for your further studies in finance. Besides several concepts of incentive theory such as Moral Hazard, Adverse Selection, Risk Premium, or Information Rent, you learn drivers for the optimal use of incentive instruments such as piece rates, profit sharing, or performance measurement. In addition, you get familiar with several concepts of game theory, for example, the Nash Equilibrium concept, the Sub-game Perfect Equilibrium concept, or the Perfect Bayesian Nash equilibrium concept.

Course content/structure

The course objective is to introduce graduate and advanced undergraduate students into selected topics of economics, management, and organisation and to give them an overview of existing literature in these research fields.

Topics in recent years

  • Koordination durch Information (1998)
  • Ökonomische Analyse sozialer Normen (1998)
  • Evolutionary Game Theory (1999)
  • Psychologische Spiele (1999)
  • Beeinflussungsaktivitäten bei Reorganisation (2000)
  • Unvollständige Verträge und die Theorie der Firma (2001)
  • Netzwerkökonomie (2001)
  • Strategisches Konfliktmanagement in Organisationen (2002)
  • Konglomerate: Unternehmensstrategien, Unternehmensgrenzen und interne Kapitalmärkte (2002)
  • Selbstkontrolle und Motivation: Neue theoretische Ansätze, Anwendungen und experimentelle Evidenz in der ökonomischen Psychologie (2003)
  • Realoptionen und strategische Aspekte (2003)
  • Strategische Aspekte von Beförderungen (2005)
  • Fairness und andere Präferenzen (2005)
  • The Economics of Advertising (2006)
  • Risikomanagement und Versicherung (2006)
  • Besteuerung, Steuerharmonisierung und Steuerwettbewerb (2007)
  • Produktdifferenzierung (2008)
  • Sports Economics (2010)
  • Informationsasymmetrien in elektronischen Märkten (2011)
  • Econometrics in Organizational Theory (2012)
  • Online Advertising – Targeting, Auctions and Privacy (2013)
  • International Management (2014
  • Mass customization vs. mass production (2015)
  • The economics of innovation (2016)
  • Strategic risk-taking competition (2017)
  • Spatial Competition in Multi-store Environments (2018)

The Theory of the Firm

Committee for the Theory of the Firm in the Verein für Socialpolitik

In 1971, a Committee for the Theory of the Firm was established. Professor Dr. Jost currently acts as chairman, with the committee dedicated to research and the discussion of research results in the field of the Theory of the Firm.

FIND OUT MORE

The Theory of the Firm

Committee for the Theory of the Firm in the Verein für Socialpolitik

In 1971, a Committee for the Theory of the Firm was established. Professor Dr. Jost currently acts as chairman, with the committee dedicated to research and the discussion of research results in the field of the Theory of the Firm.

FIND OUT MORE

Contact

Get in touch with us –
We look forward to hearing from you.

Professor Dr. Peter-J. Jost

Chairholder

+49 (0)211 44709 310

pjjost(at)whu.edu