《管理经济学与商业策略 Managerial Economics & Business Strategy》教学资源（PPT课件讲稿，英文版）Chapter 6 The Organization of the Firm

Managerial economics Business strategy Chapter 6 The Organization of the Firm Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Managerial Economics & Business Strategy Chapter 6 The Organization of the Firm

Overview I Methods of Procuring Inputs Spot exchange Contracts Vertical Integration I. Transaction Costs a Specialized Investments III Optimal Procurement Input IV Principal-Agent Problem Owners-Managers Managers-Workers Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Overview I. Methods of Procuring Inputs  Spot Exchange  Contracts  Vertical Integration II. Transaction Costs  Specialized Investments III. Optimal Procurement Input IV. Principal-Agent Problem  Owners-Managers  Managers-Workers

Managers role Procure inputs in the least cost manner Costs C(Q) Provide incentives for A workers to put forth $100 B effort Failure to accomplish this results in a point like a Dutput $10 Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Manager’s Role • Procure inputs in the least cost manner • Provide incentives for workers to put forth effort • Failure to accomplish this results in a point like A $100 80 0 $10 Output Costs A B C(Q)

Methods of Procuring Inputs Spot exchange When the buyer and seller of an input meet, exchange and then go their separate ways Contracts A legal document that creates an extended relationship between a buyer and a seller Vertical Integration a When a firm shuns other suppliers and chooses to produce an input internally Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Methods of Procuring Inputs • Spot Exchange  When the buyer and seller of an input meet, exchange, and then go their separate ways. • Contracts  A legal document that creates an extended relationship between a buyer and a seller. • Vertical Integration  When a firm shuns other suppliers and chooses to produce an input internally

Key features Spot exchange a Specialization, avoids contracting costs, avoids costs of vertical integration Possible hold-up problem Contracting Specialization, reduces opportunism, avoids skimping on specialized investments a Costly in complex environments Vertical Integration Reduces opportunism, avoids contracting costs ost specialization, organizational costs Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Key Features • Spot Exchange  Specialization, avoids contracting costs, avoids costs of vertical integration.  Possible “hold-up problem” • Contracting  Specialization, reduces opportunism, avoids skimping on specialized investments  Costly in complex environments • Vertical Integration  Reduces opportunism, avoids contracting costs  Lost specialization, organizational costs

Transaction Costs Costs of acquiring an input over and above the amount paid to the input supplier Includes Search costs Negotiation costs a Other required investments or expenditures Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Transaction Costs • Costs of acquiring an input over and above the amount paid to the input supplier. • Includes:  Search costs  Negotiation costs  Other required investments or expenditures

Specialized Investments Investments made to allow two parties to exchange but has little or no value outside of the exchange relationship ■ Site specificity Physical-asset specificity Dedicated assets Hu uman capita Lead to higher transaction costs and the problem of hold-up Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Specialized Investments • Investments made to allow two parties to exchange but has little or no value outside of the exchange relationship  Site specificity  Physical-asset specificity  Dedicated assets  Human capital • Lead to higher transaction costs and the problem of “hold-up

Specialized Investments and Contract Length MC MB Due to greater need for specialIzed investments MB Longer Contract Contract 0 Length Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Specialized Investments and Contract Length MB0 MC L0 $ Contract Length 0 L1 MB1 Longer Contract Due to greater need for specialized investments

Optimal Input Procurement S pot EXchange Substantial specialized Investments relative to Yes Complex contracting contracting costs? environment relative to costs of integration? No Ye Vertical Contract Integration Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 Optimal Input Procurement Substantial specialized investments relative to contracting costs? Spot Exchange No Complex contracting environment relative to costs of integration? Yes Vertical Integration Yes Contract No

The Principal-Agent Problem Occurs when the principal cannot observe the effort of the agent Example: Shareholders(principal) cannot observe the effort of the manager(agent) Example: Manager(principal) cannot observe the effort of workers(agents) The Problem: Principal cannot determine whether a bad outcome was the result of the agents low effort or due to bad luck Michael R Baye, Managerial Economics and Business Strategy, 3e. CThe McGraw-Hill Companies, Inc, 1999

Michael R. Baye, Managerial Economics and Business Strategy, 3e. ©The McGraw-Hill Companies, Inc. , 1999 The Principal-Agent Problem • Occurs when the principal cannot observe the effort of the agent  Example: Shareholders (principal) cannot observe the effort of the manager (agent)  Example: Manager (principal) cannot observe the effort of workers (agents) • The Problem: Principal cannot determine whether a bad outcome was the result of the agent’s low effort or due to bad luck