Outline

Overview

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

Academic unit	Economics
Credit points	6
Prerequisites ?	ECOS2001 or ECOS2901
Corequisites ?	None
Prohibitions ?	ECON3003 or ECOS2306
Assumed knowledge ?	None
Available to study abroad and exchange students	Yes

Teaching staff

Coordinator	Andrew Wait, andrew.wait@sydney.edu.au

Assessment

The census date for this unit availability is 31 March 2026

Details
Criteria

Type	Description	Weight	Due	Length	Use of AI
Written exam	Final exam Paper-based exam	50%	Formal exam period	2 hours	AI prohibited
Outcomes assessed:
In-person practical, skills, or performance task or test	In-class assessments In-class assessment tasks: Weeks 1-5 and 8-13	25%	Multiple weeks	1500-word equivalent	AI prohibited
Outcomes assessed:
Written test	In-semester test Paper-based test	25%	Week 07 Due date: 15 Apr 2026 at 14:30	1 hour	AI prohibited
Outcomes assessed:

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 (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	To be awarded to students who, in their performance in assessment tasks, demonstrate the learning outcomes for the unit at an exceptional standard as defined by grade descriptors or exemplars established by the faculty.
Distinction	75 - 84	To be awarded to students who, in their performance in assessment tasks, demonstrate the learning outcomes for the unit at a very high standard as defined by grade descriptors or exemplars established by the faculty.
Credit	65 - 74	To be awarded to students who, in their performance in assessment tasks, demonstrate the learning outcomes for the unit at a good standard as defined by grade descriptors or exemplars established by the faculty.
Pass	50 - 64	To be awarded to students who, in their performance in assessment tasks, demonstrate the learning outcomes for the unit at an acceptable standard as defined by grade descriptors or exemplars established by the faculty.
Fail	0 - 49	When you don’t meet the learning outcomes of the unit to a satisfactory standard.

For more information see guide to grades.

Use of generative artificial intelligence (AI)

You can use generative AI tools for open assessments. Restrictions on AI use apply to secure, supervised assessments used to confirm if students have met specific learning outcomes.

Refer to the assessment table above to see if AI is allowed, for assessments in this unit and check Canvas for full instructions on assessment tasks and AI use.

If you use AI, you must always acknowledge it. Misusing AI may lead to a breach of the Academic Integrity Policy.

Visit the Current Students website for more information on AI in assessments, including details on how to acknowledge its use.

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.

Academic integrity

The University expects students to act ethically and honestly and will treat all allegations of academic integrity breaches seriously.

Our website provides information on academic integrity and the resources available to all students. This includes advice on how to avoid common breaches of academic integrity. Ensure that you have completed the Academic Honesty Education Module (AHEM) which is mandatory for all commencing coursework students

Penalties for serious breaches can significantly impact your studies and your career after graduation. It is important that you speak with your unit coordinator if you need help with completing assessments.

Visit the Current Students website for more information on AI in assessments, including details on how to acknowledge its use.

Learning support

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.

Support for students

The Support for Students Policy reflects the University’s commitment to supporting students in their academic journey and making the University safe for students. It is important that you read and understand this policy so that you are familiar with the range of support services available to you and understand how to engage with them.

The University uses email as its primary source of communication with students who need support under the Support for Students Policy. Make sure you check your University email regularly and respond to any communications received from the University.

Learning resources and detailed information about weekly assessment and learning activities can be accessed via Canvas. It is essential that you visit your unit of study Canvas site to ensure you are up to date with all of your tasks.

If you are having difficulties completing your studies, or are feeling unsure about your progress, we are here to help. You can access the support services offered by the University at any time:

Support and Services (including health and wellbeing services, financial support and learning support)
Course planning and administration
Meet with an Academic Adviser

Weekly schedule

WK	Topic	Learning activity
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 (2 hr)
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.	Tutorial (1 hr)
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 (2 hr)
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.	Tutorial (1 hr)
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 (2 hr)
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.	Tutorial (1 hr)
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 (2 hr)
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.*	Tutorial (1 hr)
Week 05	Bundling tasks into jobs and sub jobs: Brickley, Smith and Zimmerman, Chapter 13*	Lecture (2 hr)
Week 05	Bundling tasks into jobs and sub jobs: Brickley, Smith and Zimmerman, Chapter 13*	Tutorial (1 hr)
Week 06	Workers and employment: Brickley, Smith and Zimmerman, Chapter 14*	Lecture (2 hr)
Week 06	Workers and employment: Brickley, Smith and Zimmerman, Chapter 14*	Tutorial (1 hr)
Week 07	In Semester Test	Tutorial (1 hr)
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 (2 hr)
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.	Tutorial (1 hr)
Week 09	Performance evaluation: Brickley, Smith and Zimmerman, Chapter 16*	Lecture (2 hr)
Week 09	Performance evaluation: Brickley, Smith and Zimmerman, Chapter 16*	Tutorial (1 hr)
Week 10	Divisional performance evaluation: Brickley, Smith and Zimmerman, Chapter 17*	Lecture (2 hr)
Week 10	Divisional performance evaluation: Brickley, Smith and Zimmerman, Chapter 17*	Tutorial (1 hr)
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 (2 hr)
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	Tutorial (1 hr)
Week 12	Corporate governance: Brickley, Smith and Zimmerman, Chapters 18*	Lecture (2 hr)
Week 12	Corporate governance: Brickley, Smith and Zimmerman, Chapters 18*	Tutorial (1 hr)
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 (2 hr)
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.	Tutorial (1 hr)

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 through the Library’s reading list system Leganto, available on Canvas.

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

Learning outcomes

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.

Outcomes
Graduate qualities

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
Learning outcomes

Responding to student feedback

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

Important: the University of Sydney regularly reviews units of study and reserves the right to change the units of study available annually. To stay up to date on available study options, including unit of study details and availability, refer to the relevant handbook.

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

Current students

Overview

Overview

Unit details and rules

Teaching staff

Assessment

Assessment

Assessment summary

Assessment criteria

Use of generative artificial intelligence (AI)

Late submission

Academic integrity

Learning support

Learning support

Simple extensions

Special consideration

Using AI responsibly

Support for students

Weekly schedule

Weekly schedule

Attendance and class requirements

Study commitment

Required readings

Learning outcomes

Learning outcomes

Graduate qualities

Outcome map

Responding to student feedback

Responding to student feedback

Disclaimer

On this page

Useful links

ECOS3003: Hierarchies, Incentives and Firm Structure

Semester 1, 2026 [Normal day] - Camperdown/Darlington, Sydney

Overview

Overview

Unit details and rules

Teaching staff

Assessment

Assessment

Assessment summary

Assessment criteria

Use of generative artificial intelligence (AI)

Late submission

Academic integrity

Learning support

Learning support

Simple extensions

Special consideration

Using AI responsibly

Support for students

Weekly schedule

Weekly schedule

Attendance and class requirements

Study commitment

Required readings

Learning outcomes

Learning outcomes

Graduate qualities

Outcome map

Responding to student feedback

Responding to student feedback

Disclaimer

On this page

Useful links