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Unit of study_

ECOS3003: Hierarchies, Incentives and Firm Structure

Semester 1, 2021 [Normal day] - Camperdown/Darlington, Sydney

This unit deals with the coordination and motivation problems faced by firms. More specifically this unit examines: whether firms use price or command mechanisms to allocate resources within firms; the problems associated with designing incentive contracts; the principles of efficient contract design and; the real world applications of those principles. The final section deals with the manner in which the coordination and motivation problems faced by firms determines their financial, vertical and horizontal structure.

Unit details and rules

Unit code ECOS3003
Academic unit Economics
Credit points 6
Prohibitions
? 
ECON3003 or ECOS2306
Prerequisites
? 
ECOS2001 or ECOS2901
Corequisites
? 
None
Assumed knowledge
? 

None

Available to study abroad and exchange students

Yes

Teaching staff

Coordinator Andrew Wait, andrew.wait@sydney.edu.au
Lecturer(s) Andrew Wait, andrew.wait@sydney.edu.au
Type Description Weight Due Length
Final exam (Open book) Type C final exam Final exam
Final exam
50% Formal exam period 2 hours
Outcomes assessed: LO1 LO2 LO3 LO4
Small continuous assessment Problem set
Problem set
10% Week 05
Due date: 01 Apr 2021 at 18:00

Closing date: 01 Apr 2021
250 words equivalent
Outcomes assessed: LO1 LO4 LO3 LO2
In-semester test (Open book) Type C in-semester exam Mid-semester exam
Mid-semester exam
25% Week 07
Due date: 22 Apr 2021 at 11:00

Closing date: 22 Apr 2021
1 hour
Outcomes assessed: LO1 LO2 LO3 LO4
Assignment Written report
n/a
15% Week 11
Due date: 11 May 2020 at 13:00
750 words
Outcomes assessed: LO1 LO2 LO3 LO4
Type C final exam = Type C final exam ?
Type C in-semester exam = Type C in-semester exam ?

Assessment summary

Detailed information for each assessment can be found on Canvas. 

Assessment criteria

The University awards common result grades, set out in the Coursework Policy 2014 (Schedule 1).

As a general guide, a High distinction indicates work of an exceptional standard, a Distinction a very high standard, a credit a good standard, and a pass an acceptable standard.

Result name

Mark range

Description

High distinction

85 - 100

 

Distinction

75 - 84

 

Credit

65 - 74

 

Pass

50 - 64

 

Fail

0 - 49

When you don’t meet the learning outcomes of the unit to a satisfactory standard.

For more information see sydney.edu.au/students/guide-to-grades

For more information see guide to grades.

Late submission

In accordance with University policy, these penalties apply when written work is submitted after 11:59pm on the due date:

  • Deduction of 5% of the maximum mark for each calendar day after the due date.
  • After ten calendar days late, a mark of zero will be awarded.

This unit has an exception to the standard University policy or supplementary information has been provided by the unit coordinator. This information is displayed below:

Late submission of both the Problem Set and the Written Report are not possible in order to satisfy the learning outcomes of the unit (including the provision of feedback prior to the examinations).

Academic integrity

The Current Student website  provides information on academic integrity and the resources available to all students. The University expects students and staff to act ethically and honestly and will treat all allegations of academic integrity breaches seriously.  

We use similarity detection software to detect potential instances of plagiarism or other forms of academic integrity breach. If such matches indicate evidence of plagiarism or other forms of academic integrity breaches, your teacher is required to report your work for further investigation.

You may only use artificial intelligence and writing assistance tools in assessment tasks if you are permitted to by your unit coordinator, and if you do use them, you must also acknowledge this in your work, either in a footnote or an acknowledgement section.

Studiosity is permitted for postgraduate units unless otherwise indicated by the unit coordinator. The use of this service must be acknowledged in your submission.

Simple extensions

If you encounter a problem submitting your work on time, you may be able to apply for an extension of five calendar days through a simple extension.  The application process will be different depending on the type of assessment and extensions cannot be granted for some assessment types like exams.

Special consideration

If exceptional circumstances mean you can’t complete an assessment, you need consideration for a longer period of time, or if you have essential commitments which impact your performance in an assessment, you may be eligible for special consideration or special arrangements.

Special consideration applications will not be affected by a simple extension application.

Using AI responsibly

Co-created with students, AI in Education includes lots of helpful examples of how students use generative AI tools to support their learning. It explains how generative AI works, the different tools available and how to use them responsibly and productively.

WK Topic Learning activity Learning outcomes
Week 01 Markets, organisations and the role of knowledge; game theoretic tools: Brickley, Smith and Zimmerman, Chapter 3*, 9*: Coase, R. (1960), ‘The Problem of Social Cost’, Journal of Law and Economics, pp.140: Coase, R. (1937), ‘The nature of the Firm’, Economica, IV, pp. 386405. Lecture and tutorial (3 hr) LO1 LO2
Week 02 Incentive conflicts and contracts and organisational architecture: Brickley, Smith and Zimmerman, Chapter 10*, 11*; Jensen, M. and W. Meckling (1995), ‘Specific and General Knowledge, and Organizational Structure’, Journal of Applied Corporate Finance, 8(2), 418. Lecture and tutorial (3 hr) LO1 LO2 LO4
Week 03 Trust and decision rights: The level of empowerment: Chen, Yongmin, ‘Promises, Trust, and Contract’, Journal of Law, Economics and Organizations, vol. 16, no. 1, pp. 209232.* Brickley, Smith and Zimmerman, Chapter 12*: Aghion, P. and J. Tirole 1997, ‘Formal and real authority in organizations’, Journal of Political Economy, vol. 105, no. 1, pp. 129.* Lecture and tutorial (3 hr) LO1 LO2 LO3 LO4
Week 04 Trust and decision rights: The level of empowerment Aghion, P. and J. Tirole 1997, ‘Formal and real authority in organizations’, Journal of Political Economy, vol. 105, no. 1, pp. 129.* Lecture and tutorial (3 hr) LO1 LO2 LO3 LO4
Week 05 Bundling tasks into jobs and sub jobs: Brickley, Smith and Zimmerman, Chapter 13* Lecture and tutorial (3 hr) LO2 LO3 LO4
Week 06 Workers and employment: Brickley, Smith and Zimmerman, Chapter 14* Lecture and tutorial (3 hr) LO1 LO2 LO3 LO4
Week 08 Incentive compensation: Holmstrom, B (1982), ‘Moral Hazard in Teams’, Bell Journal of Economics, 13, 324340. Holden, R (2005), ‘The original management incentive schemes’, The Journal of Economic Perspectives, 19(4), 135144. Smirnov, V and A.Wait (2017) 'Contracts, Incentives and Organizations: Hart and Holmstrom Nobel Laureates', Section 2 Bebchuk, L and J. Fried (2003), ‘Executive Compensation as an Agency Problem’, Journal of Economic Perspectives, 17(3), pp. 7192. Lecture and tutorial (3 hr) LO1 LO2 LO3 LO4
Week 09 Performance evaluation: Brickley, Smith and Zimmerman, Chapter 16* Lecture and tutorial (3 hr) LO2 LO3 LO4
Week 10 Divisional performance evaluation: Brickley, Smith and Zimmerman, Chapter 17* Lecture and tutorial (3 hr) LO2 LO3 LO4
Week 11 The boundaries of the firm: Brickley, Smith and Zimmerman, Chapters 5* and 19*; Hart, O. Firms Contracts and Financial Structure. Oxford: Clarendon Press, 1995, Chapters 12; Smirnov, V and A.Wait (2017) 'Contracts, Incentives and Organizations: Hart and Holmstrom Nobel Laureates', Section 3 Lecture and tutorial (3 hr) LO1 LO2 LO3 LO4
Week 12 Corporate governance: Brickley, Smith and Zimmerman, Chapters 18* Lecture and tutorial (3 hr) LO1 LO2 LO3 LO4
Week 13 Motivating change within organisations: rickley, Smith and Zimmerman, Chapter 20*; Wait, A. 2005, ‘Holdup and innovation’, Journal of Economics, 85(3), 277-295.* Lecture and tutorial (3 hr) LO1 LO2 LO3 LO4

Attendance and class requirements

  • Attendance: According to Faculty Board Resolutions, students in the Faculty of Arts and Social Sciences are expected to attend 90% of their classes. If you attend less than 50% of classes, regardless of the reasons, you may be referred to the Examiner’s Board. The Examiner’s Board will decide whether you should pass or fail the unit of study if your attendance falls below this threshold.
  • Lecture recording: Most lectures (in recording-equipped venues) will be recorded and may be made available to students on the LMS. However, you should not rely on lecture recording to substitute your classroom learning experience.
  • Preparation: Students should commit to spend approximately three hours’ preparation time (reading, studying, homework, essays, etc.) for every hour of scheduled instruction.

Study commitment

Typically, there is a minimum expectation of 1.5-2 hours of student effort per week per credit point for units of study offered over a full semester. For a 6 credit point unit, this equates to roughly 120-150 hours of student effort in total.

Required readings

All readings for this unit can be accessed on the Library eReserve link available on Canvas.

  • Textbook: Brickley, J., Smith, C. and J. Zimmerman (2015), Managerial Economics and Organizational Architecture, 6th edition, McGrawHill, New York.

Learning outcomes are what students know, understand and are able to do on completion of a unit of study. They are aligned with the University's graduate qualities and are assessed as part of the curriculum.

At the completion of this unit, you should be able to:

  • LO1. demonstrate an understanding of important economic factors that help shape the structure of the firm
  • LO2. analyse the way an organisation allocates its decision-making rights, the way it rewards its employees and the measures it uses to assess performance are all interrelated
  • LO3. understand the concepts of: freeriding; principal agent; incentive compatibility; individual rationality constraint; real and formal authority; prisoners’ dilemma; coordination game; and multitask problems, and be able to apply these concepts to real problems faced by organisations
  • LO4. critically evaluate the effect of changes in technology, product market competition and globalisation on these decisions about the internal structure of the businesses, not only from the perspective of the firm (attempting to maximise profit), but also from the perspective of a policy maker (attempting to maximise social welfare).

Graduate qualities

The graduate qualities are the qualities and skills that all University of Sydney graduates must demonstrate on successful completion of an award course. As a future Sydney graduate, the set of qualities have been designed to equip you for the contemporary world.

GQ1 Depth of disciplinary expertise

Deep disciplinary expertise is the ability to integrate and rigorously apply knowledge, understanding and skills of a recognised discipline defined by scholarly activity, as well as familiarity with evolving practice of the discipline.

GQ2 Critical thinking and problem solving

Critical thinking and problem solving are the questioning of ideas, evidence and assumptions in order to propose and evaluate hypotheses or alternative arguments before formulating a conclusion or a solution to an identified problem.

GQ3 Oral and written communication

Effective communication, in both oral and written form, is the clear exchange of meaning in a manner that is appropriate to audience and context.

GQ4 Information and digital literacy

Information and digital literacy is the ability to locate, interpret, evaluate, manage, adapt, integrate, create and convey information using appropriate resources, tools and strategies.

GQ5 Inventiveness

Generating novel ideas and solutions.

GQ6 Cultural competence

Cultural Competence is the ability to actively, ethically, respectfully, and successfully engage across and between cultures. In the Australian context, this includes and celebrates Aboriginal and Torres Strait Islander cultures, knowledge systems, and a mature understanding of contemporary issues.

GQ7 Interdisciplinary effectiveness

Interdisciplinary effectiveness is the integration and synthesis of multiple viewpoints and practices, working effectively across disciplinary boundaries.

GQ8 Integrated professional, ethical, and personal identity

An integrated professional, ethical and personal identity is understanding the interaction between one’s personal and professional selves in an ethical context.

GQ9 Influence

Engaging others in a process, idea or vision.

Outcome map

Learning outcomes Graduate qualities
GQ1 GQ2 GQ3 GQ4 GQ5 GQ6 GQ7 GQ8 GQ9

This section outlines changes made to this unit following staff and student reviews.

Some adjustments in teaching content and method have been made in response to student feedback.

Disclaimer

The University reserves the right to amend units of study or no longer offer certain units, including where there are low enrolment numbers.

To help you understand common terms that we use at the University, we offer an online glossary.