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Managerial Economics
Research Area and Mission
This programme aims to bring together economists working at the scientific frontier of two interconnected fields: the economics of organisation and the economics of strategy. These fields are considered to be interrelated for two important reasons. From a substantive point of view, strategic decisions of firms may depend crucially on the way they are organised internally. Vice versa, strategic decisions of firms may have an impact upon organisational design issues. From a more technical point of view, both areas (certainly in their theoretical orientation) employ very similar microeconomic techniques. Our mission is to be at the forefront of literature contribution in the two areas described above.
Phase of development
The core of the programme has been in existence for almost 10 years. Individual researchers have come and gone, but the emphasis on a programme using strategic interaction (game theory) and informational asymmetries (analyzed by principal agent theories or otherwise) to explain issues in industrial organisation and organisational economics has remained. The total number of researchers involved in the programme has actually increased over the past several Also, the departure of senior-level staff has been compensated by the arrival of a number of talented younger researchers who have matured over the course of the evaluation period. Recently, the group has included research on management accounting into the area of economics of organisation.
Leadership
Researchers are motivated to conduct research that is suitable for publication in international top journals. The ERIM list of journals and the TI list of journals indicate which journals are regarded as top journals. Younger researchers are encouraged to collaborate with more senior researchers both within and outside the programme. Stimulating younger researchers is one of the primary responsibilities of Full Professors participating in the research programme. Possibilities for promotions depend strongly upon research output. ERIM and TI facilitate the organisation of seminars, workshops and conferences.
Strategy and Policy
Economics of Strategy
Research under the heading “Economics of Strategy” can be subdivided into several strands. One strand deals with the investment decisions that firms, operating in an uncertain and dynamic environment, make in order to create and sustain a competitive advantage. Investment decisions relate to the location of a firm’s activities, make-or-buy decisions, patenting, the product mix and diversification of activities. The main objective of this strand of research is to estimate the effect of these decisions on a measure of firm’s performance, e.g. the productivity or profitability of a firm. In order to account for uncertainty and dynamics in the environment, the real options approach plays a prominent role. Papers in this area have been published in journals such as European Economic Review, International Journal of Industrial Organization and Journal of International Business Studies.
Another strand of our research focuses on entrepreneurship at different levels of aggregation. At the macro-level, studies are undertaken to estimate the effects of entrepreneurship on the economic performance of a country, while at the micro-level, research examines the main characteristics of entrepreneurs. Considering the latter research question, new research is set up to study genetic effects on entrepreneurship and performance. Publications in this area have been published in journals as Journal of Economic Perspectives, Review of Economics and Statistics and Small Business Economics.
A third strand of research studies the relation between firms and the environment. Performance at the regional level is linked to the industrial structure, labor mobility across regions and sectors and firms’ characteristics in terms of diversification and innovation. A measure of skill-relatedness is constructed in order to explain entry of new firms in a region and the links with firms in the same and other regions. Papers in this area have been published in journals such as Journal of Economic Geography, Regional Studies and Strategic Management Journal.
Economics of Organisation
Organisations of all sorts, be they private or public, big or small, for-profit or not-for-profit, face a host of difficult issues. Many of these issues revolve around two central themes. Firstly, how does an organisation ensure it arrives at a sound decision on what to do? This constitutes the organisation of the decision-making process. Secondly, once it is we know what should be done, how should it be carried out? This relates to themes like incentives, organisational culture, the selection of personnel, governance, the assignment of property rights etc.
Many important decisions are made by experts who have an interest in making the right decision, but also in coming across as competent decision-makers. Moreover, a decision is typically the result of a process in which information has to be collected and then discussed first. Once the decision has been made, it may or may not require a lengthy implementation phase. A central objective of our research in this area is to understand the influence of the decision-making process upon the quality of the decision reached. Also the role of governance and information systems will be analyzed. The main findings of this line of research have been published in journals such as The Accounting Review, The Quarterly Journal of Economics, The Journal of Public Economics, and The Journal of the European Economic Association.
Once it is clear what has to be done, agents should be selected and properly motivated to implement the decision. One research direction in this area focuses on incentives, both pecuniary and non-pecuniary. Through fields experiments the working of alternative inventive mechanisms will be investigated. Another direction of research focuses on the role of managers. In much of the economics literature, the role of managers is limited to writing contracts and paying employees. In practice, managers perform a host of activities. They support employees, coach them, allocate tasks, provide feedback and try to discipline employees. We intend to incorporate these roles in economic models to enhance our understanding of appraisal systems and information systems.
The main findings of this line of research have been published in journals such as The Accounting Review ,The Economic Journal, The Journal of Law, Economics and Organisation, The Journal of Economic Psychology, and Journal of Economic Behaviour and Organisation.
Processes in research
The research group has been very active in discussing research progress, stimulating research collaboration at various levels and interacting with researchers in related areas in Europe and the USA. Interaction between PhD supervisors and PhD students is also very intense. At an informal level, there are the Brown Bag seminars where faculty members present their work in progress. Many people of the research group also have regular lunch meetings discussing research in progress. In addition, PhD students in the different field usually meet on a weekly basis together and with their supervisor to discuss problems they encounter in their development. Somewhat more formally, the PhD students organize their own lunch seminar where they present just finished papers. The research group also has its own bi-weekly seminar where one internal faculty member and an externally invited researcher present ideas. These seminars are usually very well attended. For ‘economics of strategy’ there are bi-weekly brown bag seminars where faculty members and PhD students present research in progress. Furthermore, in cooperation with ERIM, there are regular seminar series in ‘strategy’ and ‘entrepreneurship’.
