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ECON 490 THE ECONOMICS OF ORGANIZATIONSFirst Class Session1Longer explanations or discussion will be found in the notes area. So the presentation can be gone through in different ways. One way is to focus on just the slides. Another way is to focus on the notes and simply use the slides as section headers. Or you can mix and match.MusicChopin Mazurka in F Sharp Minor Op. 6 No. 1Performed by Monica AlienelloHere is a little bit of culture to keep you company while you go through the slideshow. The music doesnt directly have anything to do with the economics. But as economics is sometimes referred to as the dismal science and the music is doleful, they seem to go well together. The piece is a bit more than 3 minutes. So it is not that big a time commitment to watch the slideshow. Note that you can pause at any time.

It will take more time than that to go through the notes for each slide and process the information there. 2Outline of PresentationAn ExampleThe University As An OrganizationCourse OverviewReadingsCourse Web SiteA Bit About Professor ArvanSurvey (optional and not for credit)

3Each presentation will begin with a brief outline of this sort so that you can get a sense of it before you proceed further. The University As An Organization4In this section well consider some aspects of university organization by contrasting with other possible aspects. The economics comes from asking: what services are provided by the market and what services are provided from within the University? The obvious follow up question is to then ask, why is it that way? Does where the service gets provided solve some scarce resource problem? If so, can we explain what that problem is?

Note that all images in the presentation have been obtained from the Internet and are hyperlinked to their source. In some cases, it may be interesting to follow those links for the information provided there. Standardized Testing

SATACT5From the point of view of the University, standardized testing is something provided for by the market. One of the big players in that market is the College Board, which administers the SAT. Another big player is ACT, which gives an exam by the same name. The high schools are implicit partners in the administration of these standardized tests, as their facilities are frequently used for delivery of the exam and teachers or other high school staff are frequently there to proctor the tests. Test Prep

Parliament TutorsTest Prep GuideKaplan6There is a separate market that is obviously complementary to standardized testing. This is the market for test preparation. Students certainly can take a standardized test without taking a test prep class or buying a test prep book. So the two markets are not perfectly complementary. But many students who take the same standardized test for a second or third time will take a test prep course in the hope of improving their scores. In college, instruction in class and assessment are bundled.7The instructor determines both the subject matter to be presented and the way students are to be assessed in the class. Standardized exams require large scale to be economical. In a course such as ours, there isnt sufficient volume to justify standardized testing. Thus in most upper level courses one would expect bundling simply because there isnt the scale to warrant standardized testing. What about large general education classes? Microeconomic Principles, for example, has about 1,000,000 students per year. Why isnt there standardized testing for such classes? Well known universities are brands.

HarvardStanfordU of I8Branding requires being distinctive. Consumers pay more for the name brand than they do for the generic substitute. Branding also implies higher quality. At private institutions one often finds very well known scholars teaching the large introductory class. That sometimes happens at public universities too, though the trend is moving away from this for cost reasons. Nonetheless, the university would like to claim its course is distinctive and that is part of the quality it offers.

Note that there is a way, however, that the name brand universities do accommodate a generic version of instruction in the high enrollment classes. This is via AP classes and dual credit classes. With the former, the AP exam serves as the market provided standardized test to certify student performance. College credit is awarded then if the score on that test is sufficiently high. Dual credit is a bit different in that there is no standardized test. Dual credit usually involves taking a course at the local community college. Typically there are articulation agreements between the community colleges and public universities within the same state so the duel credit course is accepted at the public university. The duel credit course may not be accepted if the student attends university out of state. Instructors are university employees not independent contractors.contractoremployee

9This slide describes the norm. It is very likely the case for face to face instruction at residential campuses such as ours. It may be less the case for online instruction or for evening instruction. What issues are resolved by making instructors employees?10This is the question that exemplifies what we will be asking repeatedly in this course. Is the organizational arrangement that we observe more efficient than alternative arrangements we can envision but dont observe? Can we explain why that is the case? How do students know the instructor will teach a course of high quality?Diploma Mills

11Instructors are hired by the department in which they teach. The department develops a reputation which is buttressed by rankings but is mainly determined by the scholarly output (publications, grants, presentations at conferences, etc.) of the faculty members in the department. The reputation of the college in which the department resides is largely determined by the reputation of its member departments. The campus brand, that weve already mentioned, hinges critically on having departments and colleges that are highly ranked.

Under the assumption that the course content will be correct and current if the instructor is an active researcher in the field (this assumption underlies much of higher education accreditation) students trust in the university brand provides them with some reasonable assurance that the courses they take are correct and current. Note this does not mean that the instructor employs the best pedagogic technique possible. Quality and correctness of the course refer to the subject matter covered.

In contrast, if the instructors were independent contractors, then either theyd have to develop their own brand for quality a costly proposition, or students who potentially might contract with such instructors would be ignorant of the quality they would be receiving. So one reason for why the instructor is an employee is to address the information problem that would emerge from students inability to determine for themselves the quality of the course being offered. Which arrangement lessens the chance of bribes for better grades?

Teacher accused12Not only are most instructors employees, but their wages are largely independent of the number of students they teach and of the grades they assign. In contrast, an independent contractor, for example think of somebody offering private tutoring, clearly earns an amount that depends directly on volume. If they person were also in the position of assigning grades, then developing a reputation as an easy grader might be more profitable, this without any explicit bribe necessary. So the employee arrangement, though it is imperfect on this score, likely increases the integrity of the assessment process. Instructor presentation material is typically made freely available through the LMS.

Presentation material13Many instructors provide their PowerPoint presentations and other content that the instructor has produced to students in the course. The students pay no incremental charge for this. It is viewed as unethical, if not illegal, for instructors to make profits off the students they teach beyond what they get paid by the university for teaching the class.

If as in the cartoon somebody in the class took notes of the class session, possibly recording the audio, the reproduction of the notes and the recording might be delivered via some third party for a fee to students. This was a controversial issue 10 years ago because instructors felt they were losing control over the class materials this way. Some campuses or departments are now offering lecture capture to students as a way to satisfy this sort of demand. Typically there is no incremental charge beyond tuition to access the lecture capture content. Students purchase textbooks on the market. That expenditure is not in tuition.

bookstore14In K-12, typically the school supplies the students with textbooks. The students get assigned a textbook that they return after the class is over. The same book is assigned to another student the next time the class is offered. School districts purchase textbooks in bulk and do this infrequently.

The college situation is quite different in this respect. Individual instructors get to choose the textbook that they will use and decide whether it is required reading or optional. For this reason, publishers covet instructors, particularly in a class where there is a big adoption decision to be made. Students who purchase the book for the course own it. There is an active resale market. But publishers, who want to have students purchase new books, are prone to come out with another edition of the book in the near future. University Libraries have generally shunned buying textbooks in bulk, feeling it is an activity outside their domain. The move to eTexts has potential to change the economics here, but so far it is not substantially reducing textbook prices. Students pay the university tuition, which covers many but not all of the costs relevant to their college education. They go to the market for textbooks and perhaps other supplemental items. 15This is our first example of when transactions happen inside the organization and when the transactions occur outside, in markets. If you see different colleges handing these issues differently, then perhaps their approach is dictated by competitive advantage over rival colleges. If all colleges seem to handle things in the same way there likely would be a systematic reason for that. Course OverviewTheory of the Firm where Econ 302 left off302 is sometimes called price theory and the focus is on markets.This course focuses on economic transactions that happen inside an organization and that are not price regulated or are only indirectly price regulated.SyllabusExperimental in ApproachWell try some things and see how it goesIf it goes well well stick with thatIf there are serious issues well try other thingsLast spring some students showed stark senioritisWill also stray into current events now and then as the economic crisis suggests ways organizations must evolve16Sorry about this slide. It is the only one in the presentation with too much text. Thats really there for reference rather than for the presentation itself. Public Class Web Site

Class Web SiteI like to have the online part of the course out in the open. I think it is more consistent with the notion that the University is a place for the free exchange of ideas. It is also easier for communicating with outsiders about the course. Some of you asked for a syllabus this summer and I was able to provide a link to the site from last year to provide relevant information. Also, this way most of the information is available immediately. If we used a learning management system, then the information is usually one or two clicks away.

We will use a LMS for private communication, mainly about grades. 17Primary Textbook Milgrom and Roberts

Milgrom and Roberts18When I was a doctoral students at Northwestern in the Economics department, which was in LAS, Milgrom and Roberts were faculty in Managerial Economics and Decision Sciences, a department in the Business school. So I got to see them present some of their research. A paper on limit pricing comes to mind. They continued to collaborate after they went to Stanford. A paper on multidimensional signaling as applied to a joint decision of the firm on how much to advertise and what price to charge for its product became influential with me. I later wrote a paper with Hadi Esfahani on Efficiency Wages as a signal, that relied on some of the ideas from Milgrom and Roberts.

One or both of them have a reasonable shot at a Nobel Prize, in my opinion.

I also like this book for when it came out, in 1992. I was a full time academic then and so most of the topics in the book are quite familiar to me from that time. I became an administrator a few years later. I hope to bring some of that experience into the course, but it wont show in doing the formal economics, where academic knowledge is required. Also Required Bolman and Deal

Bolman and Deal19Most people who think hard about what happens inside organizations are not economists. They are psychologists or sociologists or political scientists or they are high level administrators who have a desire to consider the issues they face from a systematic perspective. It is important to understand that with organizations people with different backgrounds focus on different issues and it is useful to have a multi-dimension view. So the Bolman and Deal book is there to provide some roundedness. For some students in the class, it may prove more interesting than the economics approach because it is less abstract and they spend more time talking about screw ups than Milgrom and Roberts do. Economists, with their focus on efficiency in outcomes, tend to be think what we observe is the best we possibly could observe, if we account for all the relevant constraints. Non-economists often dont maintain that point of view. ATLAS Moodle Class SiteMoodle

20This site requires a login. It is not available to the general public. It is what well use to keep the grade book and possibly for other information that should be private. Professor Arvan Publish or Perish

Lanny Arvan search in Google Scholar21Its humbling to see that more than half of the econ papers have fewer than 10 citations, a measure of influence of the work. Some of the work published online in learning technology measures readers in addition to citations. The numbers are higher there.Professor Arvan Learning TechnologySCALECETCITES Ed TechCITES Class TechCollege of Business22In the mid 1990s I had a career switch from an academic economist to an administrator focusing on learning technology. I fell into this. At the beginning it wasnt planned, just a thing to try. Later it became more deliberate.

SCALE was a soft money center funded by the Sloan Foundation. I took over running it from Burks Oakley, then a Professor of Electrical Engineering. Eventually I became director of SCALE. When the campus formed a hard money Center of Education Technologies, I became the director of that. After 3 years that center was merged with CCSO to become CITES. I became the Assistant CIO for Educational Technologies. In fall 1996 I moved to the College of Business and became the CIO and Associate Dean for eLearning. I retired in August 2010. Survey

surveyWe will use the data from the survey in our first or second class session.23