Ugo Pagano
Winter 1995
Department of Economics

Course Description

"But in view of the fact that it is usually argued that co-ordination will be done by the price mechanism, why is such co-ordination necessary? Why are there these islands of conscious power?"
(Coase, 1937)

This course will focus on the reasons for the existence success and failure of alternative organisations. The main text for the course is Paul Milgrom and John Roberts Economics, Organization and Management.

Ever since Coase's question economics had to face the problem that, within the framework of market economy organisations like firms develop and prosper. If this happens, these organisations must sometimes have some advantages relatively to market-type organisation. In general, a plurality of organisations characterises modern industrial economies. Explaining the diversity of the institutions of production is perhaps the fundamental task of the theory of industrial organisation.

One important explanation of the success and failure of organisations can be found by analysing the way in which their parts fit together. For instance, organisations must delegate some authority to those individuals having information that can be hidden; at the same time the delegation of authority will be valuable for the organisation only if these individuals have some incentives to act in the interest of the organisation.

Organisations need to solve two basic problems: coordinating decisions and giving the incentives and the motivation to carry them out. We will start by examining the general ???

Milgrom P. and Roberts J. (1992) Economics, Organisation and Management. Prentice Hall, New Jersey.

Chang H. J. (1994) The Political Economy of Industrial Policy. Macmillan London.

General Readers:
Alt J. E. and Shepsle K. J. (1992) Perspectives on Positive Political Economy. Cambridge University Press, Cambridge.

Bowles S., Gintis H. and Gustafson B. (1993) Markets and Democracy. Cambridge University Press, Cambridge.

Hodgson (1993) The Economics of Institutions. A Volume of The International Library of Critical Writings in Economics. Series Editor Mark Blaug Edward Elgar, Cheltenham.

Nelson R. (1993) National Innovaton Systems. Oxford University Press, NewYork.

Werin L., Wijkander H. (1992) Contract Economics. Blackwell, Oxford.

Putterman L. (1986) The Economic Nature of the Firm. A Reader. Cambridge University Press, Cambridge.

Williamson O. E., Winter S. G. eds. (1991) The Nature of the Firm. Origins, Evolution and Development. O. U. P. New York and Oxford.

Readings for selected essay tonics:

1. Why do firms exist?

1. A. The transaction cost view vs technological view of the firm: reflections on Coase (1937) and Coase (1960).

Arrow K. J. (1974) The Limits of Organization. Norton, New York.

*Dow G. K. (1987) The Function of Authority in Transaction Cost Economics. Journal of Economic Behaviour and Organization. N. 8 pp. 13-39.

Calabresi (1991) "The Pointless of Pareto: Carrying Coase Further." The Yale Law Journal. Vol. 100 pp. 1211-1237.

*Coase R. H. (1937) " The Nature of the Firm" Economica (1937): pp. 386-405. Repr. in G. H. Stigler and K. E. Boulding, eds. (1952) Readings in Price Theory. Homewood, Richard D. Irwin.

*Coase R. H. (1960) "The Problem of Social Costs" Journal of Law and Economics, 3 pp. 1-44.

Demsetz H. (1988) Ownership Control and the Firm. The Organization of Economic Activity. Basil Blackwell. Oxford.

1.B. Austrians, planners and rational expectations: disequilibrium views of markets and hierarchies.

Dobb M. H. (1933) Economic Theory and the Problem of a Socialist Economy. Economic Journal, vol. 19 pp. 588-98.

Dobb M. H. (1935) Economic Theory and a Socialist Economy: a reply. Review of Economic Studies, vol 3 pp 144-51.

Flydman R. (1983) Individual Rationality, Decentralization and the Rational Expectations Hypothesis. In Frydman and Phelps (1983).

Frydman R., Phelps E. S. (1983) Individual Forecasting and Aggregate Outcomes. Rational Expectations Examined. Cambridge University Press. Cambridge.

*Hayek F. A. (1935) Collectvist Economic Planning, Routledge, London.

Hayek F. A. (1949) Individualism and Economic Order. Routledge, London.

*Hahn F. H. (1987) Auctioneer in Eatwell J., Milgate M. and Newman P. eds The New Palgrave Macmillan,London.

Heal G. M. (1973) The Theory of Economic Planning, Amsterdam, North Holland.

Marx K. ( 1967) Capital, New York International Publishers.

Mises L. von (1920) Economic Calculation in the Socialist Commonwealth, in A. Nove and D. M. Nuti (eds) Socialist Economics, Harmonddsworth, Penguin.

*Lange O. (1936a) On the Economic Theory of Socialism: Part I, Review of Economic Studies vol. 4 pp. 53-71. Reprinted in M. J. Farrel (1973) Readings in Welfare Economics, Macmillan, London.

Lange O. (1936b) Mr Lerner' s "Note on Socialist Economics". Review of Economic Studies vol. 4 pp. 143-4. Reprinted in M. J. Farrel (1973) Readings in Welfare Economics, Macmillan, London.

Lerner A. P.(1936) A Note on Socialist Economics. Review of Economic Studies vol. 4 pp. 72-6. Reprinted in M. J. Farrel (1973) Readings in Welfare Economics, Macmillan, London.

Lavoie D. (1985) Rivalry and Central Planning. Cambridge University Press. Cambridge.

Muth J. F. (1961) Rational Expectations and the Theory of Price Movements, Econometrica v. 29 pp. 315-35.

Pagano U. (1985) Work and Welfare in Economic Theory, Basil Blackwell, Oxford .

*Pagano U. (1992) Authority, Co-ordination and Disequilibrium: An Explanation of the Coexistence of Markets and Firms. Economic Dynamics and Structural Change. N. 2. Reprinted in Hodgson (1993) The Economics of Institutions. Edward Elgar, Cheltenham.

Pesaran H. M. (1987) The Limits to Rational Expectations. Basil Blackwell, Oxford.

2. Ownership organization and technology:

2A. The Monitoring Problem.

Alchian A. (1987) "Property Rights" in J. Eatwell, M. Millgate and P. Millgate eds. The New Palgrave, pp. 1031-1034. Macmillan, London.

Alchian A. and Demsetz H. (1972) "The Property Rights Paradigm". Journal of Economic History 33 pp. 16-27

Aoki M. (1984) The Co-operative Game Theory of the Firm. Claredon Press, Oxford

* Alchian and Demsetz (1972) Production, Information Costs and Economic Organization. American Economic Review, 62 pp. 777-95.

*Bowles S. (1985) "The Production Process in a Competitive Economy: Walrasian, NeoHobbesian, and Marxian Models". The American Economic Review, 75 pp. 16-36. Reprinted in Putterman (1986).

Bowles S. (1989) "Social Institutions and Technical Change". In Di Matteo M., Goodwin R. M. and Vercelli A. eds. Technological and Social Factors in Long Term Fluctuations. Springer-Verlag, New York.

Demsetz H. (1966) "Toward a Theory of Property Rights", American Economic Review. Papers and Proceedings no. 2 pp 347-359.

Demsetz H. (1988) "The Theory of the Firm Rivisited", Journal of Law, Economics and Organization vol. 4 no. 1 pp. 141-161. Reprinted in Demsetz (1988)

*Jensen M. and Meckling W. (1976) The Theory of the Firm: Managerial Behaviour, Agency Costs and Capital Structure, Journal of Financial Economics, n.3, pp.305-60.

2B. The specificity problem.

*Alchian A. (1984) Specificity, Specialization and Coalitions. Journal of Institutional and Theoretical Economics pp. 34-39.

Hirshman, A. D. (1970) Exit, Voice and Loyalty, Cambridge, Massachusets, Harvard University Press

*Leijonhufvud A. (1986) Capitalism and the Factory System, Langlois R. N. (1986) Economics as a Process, Essays in the New Institutional Economics, Cambridge University Press, Cambridge.

*Milgron P. - Roberts (1990) J. Bargaining Costs, Influence Costs and the Organization of Economic Activity, in Alt J. E; - Shepsle K. A. eds. Perspectives on Positive Political Economy. C. U P..

*Hart O. (1990) Incomplete Contracts and Theory of the Firm. In Williamson O. E., Winter S. G. eds. (1991) The Nature of the Firm. Origins, Evolution and Development. O. U. P. New York and Oxford.

* Pagano U. (1991) Property Rights Asset Specificity, and the Division of Labour under Alternative Capitalist Relations. Cambridge Journal of Economics. vol. 15 n.3 pp. 315-342. Reprinted in Hodgson (1993) The Economics of Institutions . Edward Elgar, Cheltenham.

Williamson O. E. (1985) The Economic Institutions of Capitalism. The Free Press, New York.

2C. Some radical critiques.

Braverman H. (1974) Labour and Monopoly Capital, Monthly Review Press, New York

Edwards R. (1979) Contested Terrain. Basic Books New York.

Elbaum B., Wilkinson F. (1979) Industrial Relations and Uneven Development: a Comparative Study of the American and the British Steel Industries. Cambridge Journal of Economics, Vol. 3, No 3, pp. 275-303.

Marglin S. (1974) "What Do Bosses Do?" Review of Radical Political Economy vol. 6 pp. 60-112

Pagano U. (1992) Braverman. in Arestis P. and Sawyer M. C. Biographical Dictionary of Dissenting Economists. Edward Elgar, Cheltenham.

Sawyer M. C. (1989) The Challenge of Radical Political Economy. Harvester Wheatsheaf, London.

Thompson P. (1983) The Nature of Work. An Introduction to Debates on the Labour Process. Macmillan, London.

Wilkinson F. ( l977) Collective Bargaining in the Steel Industry in the 1920s. In A. Briggs and J. Saville eds Essays in Labour History 1918-1939, Croom Helm.

Wood S. (1982) The Degradation of Work: Skill De-skilling and the Labour Process. Hutchison, London.

3. Self-reinforcing organisations and the institutional pre- conditions of a market economy.

* Akerlof G. A. (1970) The Market for Lemons: Qualitative Uncertainty and the Market Mechanism. Quaterly Journal of Economics 84 pp. 488-500.

Aoki M. (1988) Information, incentives and bargaining in the Japanese Economy. C. U. P.Cambridge.

Boyer R. (1988) Ed. The Search for Labour Market Flexibility. The European Economies in Transition. Claredon Press. Oxford.

Brusco S. (1982) The Emilian Model: Productive Decentralization and Social Integration. Cambridge Journal of Economics N. 6 pp.167-184.

*Dasgupta P., David P. (1988) Priority, Secrecy, Patents and the Socio-Economics of Science and Technology. Center for Economic Policy Reaseach. Stanford University. Pubblication No. 127.

*David P. (1944) Why are institutions carriers of history? Structural Change and Economic Dynamics forthcoming.

Osterman P. (1984) Internal Labour Markets. The MIT Press, Cambridge, Massachusetts.

Marsden P. (1986) The End of Economic Man. Wheatsheaf. Brighton.

*Maurice M., Sellier F., Silvestre J. (1984) The Search for a Societal Effect in the Production of Company Hierarchy: A Comparison of France and Germany, in Osterman.

Morishima M. (1982) Why has Japan succeded? Western Technology and the Japanese Ethos, C. U. P. Cambridge.

North D. (1990) Institutions, Institutional Change and Economic Performance. Cambridge University Press, Cambridge.

Piore M. and Sabel C. (1984) The Second Industrial Divide. Basic Books, New York.

*Pagano U. (1992) "Organisational Equilibria and Institutional Stabilty" in Bowles S. Gintis H. - Gustafsson B. Democracy and Markets. C. U. P., Cambridge.

Putterman L. (1982) Some Behavioural Perspectives On the Dominance of Hierarchical over Democratic Forms of Enterprise. Journal of Economic Behaviour and Organization 3 pp.139-60.

Ryan P. (1984) Job Training, Employment Pratices, and the Large Enterprise: The Case of Costly Transferable Skills, in Osterman.

Sabel C. (1982) Work and Politics. The Division of Labour in Industry. Cambridge University Press, Cambridge.

CRC-Curriculum Resource Center
CEU Budapest, Hungary
Modified: May, 1996


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