Collective Decision-Making in Organizations
For many economists, markets are the most preferred way of resource allocation. Spontaneous market prices create incentives for both market sides to supply and demand the efficient amount, and they convey information about scarcity and needs which is not available to a central planner.
However, transaction costs or economies of scale may induce market failure. Coase (1937) and Williamson (1985) have pointed out that organizations can be a transaction cost-saving alternative. The allocation of resources within organizations takes place without referring to the market price mechanism. Committees and teams negotiate and vote, superiors can excert their power to decide in hierarchies, lobbying may take place behind the scenes. Just as the market mechanism, such procedures aggregate individual goals to a collective outcome. This course aims at the economic analysis of such collective decision mechanisms.
Topics:
0. Basic concepts: non-cooperative game theory, markets, social welfare.
1. Contractual approach: spontaneous coordination, teams, long term contracts.
2. Rent-seeking and tournaments.
3. Power and hierarchies.
4. Voting: Condorcet winners, Arrow theorem, voting paradoxes.
5. Rules in organizations.
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