Introduction to the economics of the firm. Overview of issues Tomasz Żylicz

Main topics 1.Theory of the firm in economics 2.Inspiration by Ronald Coase 3.Incentive compatibility 4.Size and structure of the firm 5.Control instruments in the firm 6.Mergers

1.Theory of the firm in economics Classical economics – markets and prices Schumpeter – entrepreneur = innovator Knight – uninsurable uncertainty Kirzner – to simplify contracting Coase – transaction costs and property rights

2.Inspiration by Ronald Coase Transaction (and administrative) costs Why do both the markets and the firms exist? Property rights –Missing markets –Separating management from ownership A right to the rent Quasi-rent

3.Incentive compatibility Principal-agent models (agency theory) Intra-firm conflicts of interest Managerial incentive systems (residual claimancy) Inter-firm relationships

4.Size and structure of the firm Goals of firms –Profit maximisation –Maximising other criteria Motives for market monopolisation –Horizontal integration –Vertical integration Firm management schemes

5.Control instruments in the firm Workers' contracts Managerial contracts The role of trust and authority The role of labour market

6.Mergers Production motives Financial motives Hostile acqusitions –Attempts to counteract –Implications for efficiency