PHDBA279B

Incentives and Organizations in Markets PHDBA 279B - Incentives and Organizations in Markets is a class offered to doctoral students at UC Berkeley, and is a field requirement for PhDs in BPP at the Haas School of Business. This page details the course as it was taught by John Morgan and Steve Tadelis in the Spring of 2010. The course webpage provides the official requirements. The evaluation of the course is based on class participation and the presentation of two papers (50%) and one course paper (50%). The course paper must "use theory in a significant way", and should be of a quality such that with additional work and polishing it could be publishable. Specifically, students are expected to write down a model and work out at least one interesting result. Either numerical examples or special cases that could be generalized are acceptable.

1st Half

The first half was taught by John Morgan (email and website).

Paper List

The paper list by class number is as follows:

0.) The two principles: Revelation and Revenue Equivalence

Main ideas: The revelation principle forms the cornerstone for the theory of contracts and incentives in organizations. This topic reviews the revelation principle, the principal families of contract theory models, and the mechanism design paradigm.

• Chapters 8.E and 13 of Microeconomic Theory by Andreu Mas-Colell, Michael Whinston, and Jerry Green. Oxford University Press, 1995.
• Dewatripont, M., L. Hansen and S. Turnovsky (2003), "Why Every Economist Should Learn Some Auction Theory", Advances in Economics and Econometrics: Invited Lectures to 8th World Congress of the Econometric Society, Cambridge University Press. link pdf
• Morgan, John and Tanjim Hossain (2006), "...Plus Shipping and Handling: Revenue (Non)Equivalence in Field Experiments on eBay", Advances in Economic Analysis & Policy, Vol. 6: No. 2, Article 3. link pdf

1.) Search

Main idea: This topic surveys a variety of consumer search models. The two principles play an important role in generalizing some of the findings. These models are cornerstones for modeling price competition.

• Baye, Michael R., John Morgan, and Patrick Scholten (2006), "Information, Search, and Price Dispersion," Handbook of Economics and Information Systems (T. Hendershott, ed.), Elsevier Press, Amsterdam. link pdf
• Baye, Michael R., John Morgan, and Patrick Scholten (2004), "Price Dispersion in the Large and in the Small: Evidence from an Internet Price Comparison Site", Journal of Industrial Economics, December, 52(4): 463-96. link pdf

2.) Contests

Main idea: This topic surveys the contest/all-pay auction literature. Again, the two principles prove extremely useful. This literature is the cornerstone for modeling political competition, patent and R&D races, and so on.

• Nitzan, Shmuel (1994), "Modeling Rent Seeking Contests", European Journal of Political Economy, Elsevier, vol. 10(1), pages 41-60, May. link pdf
• Bulow, Jeremy and Paul Klemperer (1999), "The Generalized War of Attrition", The American Economic Review, Vol. 89, No. 1. (Mar.), pp. 175-189. link pdf
• Brown, Jennifer (2007), "Quitters Never Win: The (Adverse) Incentive Effects of Competing with Superstars", UC Berkeley Working Paper link pdf

3.) Platform Competition

Main idea: This topic highlights the emerging literarture on platform competition and two-sided markets. The revenue equivalence principle sees a little sue here as well. These are the leading modeling approaches for markets that are increasingly prominent.

• Ellison, Glenn, Fudenberg, Drew, and Möbius, Markus (2004), "Competing Auctions", Journal of the European Economic Association, Mar, Vol. 2 Issue 1, p30-66 link pdf
• Caillaud, Bernard and Bruno Jullien (2003) "Chicken & Egg: Competition among Intermediation Service Providers", The RAND Journal of Economics, Vol. 34, No. 2. (Summer), pp. 309-328. link pdf
• Brown, Jennifer and John Morgan (2009), "How much is a Dollar Worth? Tipping versus Equilibrium Coexistence on Competing Online Auction Sites", Journal of Political Economy, Vol. 117, No. 4, pp. 668-700. link pdf

4.) Cheap talk

Main idea: This topic covers information flows in organizations by examining an archetypal class of signaling games in business and public policy---corporate lobbying as cheap talk.

• Grossman, Gene and Elhanan Helpman (2001), "Special Interest Politics", Chapters 4 and 5, MIT Press

5.) Contracting under imperfect commitment

Main idea: This topic ties together the two principles with the previous unit on cheap talk signaling. The role of delegation in organizations is stressed.

• Dessein, Wouter (2002), "Authority and Communication in Organizations", The Review of Economic Studies, Vol. 69, No. 4. (Oct.), pp. 811-838. link pdf
• Krishna, Vijay and John Morgan (2008), "Contracting for information under imperfect commitment", RAND Journal of Economics, Winter, Vol. 39, No. 4, pp. 905-925. link pdf

6.) Incomplete Contracts

Main idea: To tie together the classic incomplete contracting works with mechanism design.

• Hart, Oliver and John Moore (1988), "Incomplete Contracts and Renegotiation", Econometrica, Vol. 56, No. 4. (Jul.), pp. 755-785. link pdf
• Aghion, Philippe, Mathias Dewatripont, and Patrick Rey (1994), "Renegotiation Design with Unverifiable Information", Econometrica, Vol. 62, No. 2. (Mar.), pp. 257-282. link pdf

2nd Half

The second half was taught by Steve Tadelis (email and website).

Paper List

The paper list by class number is as follows:

1.) Career Concerns

• Holmstrom B. (1999) "Managerial Incentive Problems: A Dynamic Perspective," Review of Economic Studies, 66 (1), pp.169-182 pdf
• Gibbons, R. and K.J. Murphy (1992), "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," Journal of Political Economy, 100 (3), pp.468-505 pdf