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These are formal requirements for passing the “classes part” of the course Currents in the Development of Modern Economics:Using the attached curricula for 4 themes, one should individually formulate and elaborate 2 essays; preparation of essays by the two person teams is also possibleThe titles of the essays will be approved by the lecturer (Prof. B. Fiedor). In this order, please complete the list of essays and forward to me (in the printed and on-line form) The essays should relate to 2 of 4 attached themes The structure of essays should be as follows: 1.Abstract (ca. 0,5 page) 2. Introduction, 3. Discussion of the problem, 4. Conclusions, 5. Literature (bibliography, sources of information) The essays' titles should not be a direct replication of main points/subpoints in the attached description of 4 themes. Before starting working on the elaboration of essays, you are kindly requested to personally contact me for the approval of formulation of titles (subjects). You may also complete the list of essays and forward to me (in the printed and on-line form)The essay's length should be ca. 8 standard (all margins: 2,54 cm, fonts: Times New Roman 12, interline distance: 1,5) pages. In the case of team essay (two persons) , the required length is respectively ca. 12 pagesThe citations and references (footnotes) should be placed on a given page (in the bottom) The deadline for preparing the first essay is Monday , December 3, 2018. Respective deadline for the second essay is Monday, January 14, 2019They essays are to be prepared in on-line (e-mail address: boguslaw.fiedor@ue.wroc.pl and beata.bielecka@ue.wroc.pl) and printed form (delivery place for printed version: Building B, Room 206,); please choose the two-sided printing mode.NEW THEORIES OF THE FIRM (ENTERPRISE)1. Standard neoclassical model of the firmUnity of ownership and managerial functions (the owner as both decision maker and risk taker) Economic rationality (homo oeconomicus) – striving for maximization of trading profit (objective function) under the budget constraintHomogenous productPerfectly divisible and substitutable production factors (as consequence, production factors perfectly transferable) Perfect informationPerfect predictability of future and the lack of risk or perfect risk managementZero profit hypothesis (with respect to enterprises operating under conditions of the so called contestable competition) No social costs (more generally: no negative external costs) No transaction costsEnterprise as the so called "black box”2. Main directions of critique of neoclassical enterprise theory Critique of utility maximization hypothesisEnterprises operate under circumstances of risk and uncertaintyIn big, as well as in medium-size enterprises, there occurs the diffusion of ownership which leads to the situation that particular stakeholder groups (first of all, owners and managers) differ in terms of objective functions, available information, risk exposure etc.Big enterprises are frequently characterized by the separation of ownership and managerial functions Alternative models of enterprises (as attempts at revealing the "interior of black box")Managerial models of enterprisespecific utility function of managers(potential) change of enterprise's objective function:Model of enterprise aiming at maximizing the revenues from sale (W.J.Baumol)Model of enterprise striving for maximization of sustainable (balanced) growth rate (R. Marris)Model based on the concept of x –inefficiency (H.Leibenstein)point of departure: ?efficiency gap” as the difference between actual costs and potentially lowest costsdiversified reasons for x-inefficiency (mostly caused by imperfect information, weak competition pressure and opportunistic behaviors)?selective rationality" of employees, managers, etc.Behavioral model of enterprise (R.M.Cyert, J.G. March and others)point of departure: rejection of utility maximization hypothesis and adopting the concept of satisfycing behavior of H. Simonobjective: construction of a model of firms acting on imperfectly competitive markets and under conditions of general uncertaintyenterprise is not a black box but constitutes the coalition of various entities and groups whose objective functions are differentfundamental problem: conflicts of interest between various groups of stakeholdersall groups strive for solutions which are for them satisfycing and not optimal from the point of view of enterprise as the wholeAllocative enterprise theorystarting point: transaction costs theoryenterprise strives for minimizing the market transaction costs (it determines the optimal enterprise size)enterprise is a mechanism for allocation the resources between defined goals and manners of attaining them (alternative mechanism vis-à-vis market)Agent and Principal Theory based concept of enterprise starting point: Agent and Principal Theoryinformation asymmetry and opportunistic behaviors related to informational advantage individual interest groups act under conditions of uncertainty and it is therefore impossible to unambiguously determine the input-output relationsagent's remuneration (reward) depends on: 1) expected result of his/her activity or 2) manner of his/her behavior (performance)Resource based theory of enterpriseit is connected both with economic theory and -mostly - with management science (strategic management in particular)point of departure: broad interpretation of resources (physical, financial, factors determining the quantity and quality of human capital, volitional and psychological factors, knowledge and information)resources (alike production factors) are characterized by mobility, complementarity and, on the other hand, a certain scope of substitutabilitybuilding a competitive advantage of enterprise consists in: 1) incrementing (with respect to both quantity and quality) its resources and 2) looking for and exploring new opportunities to apply them Competence theory of enterprise (concept of learning enterprise)NEW CURRENTS IN THE THEORY OF MARKET AND COMPETITIONStandard models of market/competition: market with perfect competition, monopoly, monopolistic competition, duopoly and oligopolyMarkets with imperfect competitionConcept of markets with asymmetric distribution of information (G.A.Akerloff)tenderers (producers, sellers) and purchasers have diversified information concerning prices and quality corresponding to respective levels of pricesinformational advantage of tenderers with regard to the quality of goods leads to negative selection of firmsequilibrium on a given market emerges but is distorted as compared to perfect competition situationConcept of market unequlibrium (new microeconomics)as the first concept, also based on the assumption of imperfect/incomplete information (G.J.Stigler, A.A.Alkian)subsequent assumption: informational imperfections can be diminished but its entire removal does not ensue because high costs of such removal make it economically irrationaloutcome of above mentioned process: prices do not equalize demand and supply (no price driven market clearing) it mostly relates to the cases when due to high costs it is not worth to precisely calculate the level of demand (in particular on goods being characterized by very changeable demand) in order to strictly (a) adjust supply to demand by a given price or (2) adjust price to a given supplyCompetition as a process (L.Misses, A.von Hayek)Competition as a catalactic processCompetition means not the state of the market but a continuous process of rivalryCompetition refers to the access to scarce resources or to the exploration of new resources and/or new manners of their usecompetition as a process consists in acquiring information and attaining private benefits owing to it competition has a spontaneous character but proceeds according to commonly accepted rulesa special case here is the concept of J.A. Schumpeter: competition as the process creative destructionCompetition as an evolutionary process (evolutionary economics, evolutionary model of enterprise: R.R.Nelson and S.G.Winter, A.A.Alchian/M.Friedman)generally: reference to the evolution theory, both of Darwin and based on modern geneticscompetition as a process of natural selection of firms and their adaptation to changing conditions of the business environment; adaptation takes place through innovations and imitation of other enterprises' activitiesenterprises choose (mostly) solutions which are not optimal (or maximize their utility function) but are close to their previous knowledge and experience which implies that the choice that make is based on the so called routinesthe notion of routine as counterpart of genotype in the biological evolution development of enterprises means looking for a new routine; it ensues through innovations, imitation, takeovers (of enterprises or their parts), personal mobility. New routine may be interpreted as the change of genotype in biology or the mutationmutation consists mostly not in finding optimal but only satisfycing (H. Simon' theory satisfycing behavior) solutions new routines are usually not distant from old routines (Nelson/Winter) because search for them is typically based on standard knowledge and experience of enterprises Theory of contestable competition (W.J.Baumol and others)Potentially competitive market has a number of features of perfectly competitive marketlack of entry and exit barrierslack of costs of entry and exit (sunk costs = 0)date of entry is meaningless from the point of view of competitive positionlack of entry/exit barriers and following conclusion that sunk costs = 0 means the existence of permanent competitive pressure both for enterprises operating under conditions of monopolistic competition and (even) having a full monopoly positionpotential competition leads (theoretically) to the same results as perfect competitionequilibrium is effective even for the case that there is a small number of tenderers or the goods being offered are not homogenous5. Theory of innovation and competition of J.A. Schumpetergenerally: a kind of evolutionary theorygeneral foundation for the competition are innovations and structural changes in the economypoint of departure: distinction between economic statics and dynamicsdynamics stage (evolution, development): central category for this stage is the entrepreneur and innovations (very broad understanding of innovations))triad: inventions → innovations → imitation ( diffusion of innovations)innovation as the source of entrepreneurial profitdevelopment as a process of creative destructioninnovation and the spirit of entrepreneurship in the light of business concentration process and "managerial revolution"ELEMENTS OF MICROECONOMIC CALCULUS1.Rationality, effectiveness, efficiency and optimization in economic activityinstitutional conditions of microeconomic rationality (the existence of market economy as a prerequisite for economic rationality) physical (material) and methodological rationalityrationality and effectiveness efficiency as a scalar magnitude (as element in the set of potential/permissible values/solutions)optimality as a conditional maximum/minimum Search of optimal solutions as a general model of microeconomic behavior (in neoclassical economics)Static and dynamic optimality; analytical tools for the solution of optimization problems; Optimality versus micro- and macroeconomic equilibrium; the notion of the so called representative agent/entity in macroeconomic optimization problems Microeconomic rationality and Maximization Utility Hypothesis - main directions of modifications and criticismHypotheses of financial markets effectiveness - the nature and criticism in the context of contemporary financial crisis 2. Standard understanding of costs in production and consumption (household) theory and the social costsTheory of external effects and external costsTechnological versus market external effects (costs)Methods of internalization of external costs Social costs of enterprises. Social costs and competitiveness , with taking into consideration the international competitiveness3. Transaction costs Definition and types of transaction costsTransaction costs as real costs of enterprises and of the marketTransaction costs and the size of enterpriseTransaction costs and the evolution of economic systems4. Cost-Benefit Analysis (CBA) as foundation for economic choice (in the micro- and macroeconomic scale) CBA and market valuation of potential solutions and the choice of optimal solutionMost important areas of applying the CBAMethods of valuations of non-market costs and benefits (the case of environmental costs and benefits)Maximization of NPV and benefits per unit effect and minimization of costs per unit effect as principles of choosing best project/strategy in CBADISCUSSION ABOUT THE ROLE OF STATE IN ECONOMY: THE STATE AS ECONOMIC ENTITY 1. Market and state as mechanisms of co-ordination and optimization of economic activity in the macroeconomic scaleInstitutional dichotomy: perfect market versus perfect state Paradigm of market versus paradigm of state Institutional dichotomy: imperfect state versus imperfect state Interdependence of market failures and state failures2. Nature of economic function of the state from the perspective of market paradigmperfect competition as the mechanism leading to social welfare maximization (Pareto optimum)Nature of market failures and their typesMarket failures as the reason for public regulation in a market economy3. Public regulation from the point of view of market paradigmBroad and narrow definition of public regulationPublic regulation and macroeconomic stabilization. Regulation of "real economy" versus regulation of financial markets (financial flows) - financial regulation in the light of globalization of financial markets Public regulation and social regulationMain instruments (tools) of public regulation (with respect to "real economy")Normative and economic approach towards the public regulation4. Economic function of the state in the approach of state paradigmPoint of reference: rejection of perfect market model and the view about its unreliability as the mechanism of social welfare maximization Diversification of reasons for and the scope to which the state should assist (permanently or temporarily) the market mechanism (Keynesian economics, Marxist economics, institutional economics, various streams in economics thought in developing countries)Role of the state in the ordoliberalism5. Imperfect market versus imperfect state sources of failures of the state as the coordinative and optimization mechanisminterdependence of state failures and market failuresState as a quasi market and the critique of optimization functions of the state dispute about the economic rationality under socialism and the critique of socialist command-and -control economic system within the neoclassical comparative economic studies and new institutional economy6. Four levels of state's influence upon the economypublic regulation macroeconomic stabilizationmicroeconomic and institutional regulationstructural and growth policy, and its components in the approach of market paradigm and state paradigmcontroversies about distributive functions of the state (with special regard to current financial and economic crisis) 7. Economic functions of the state under conditions of globalization and emergence of the so called New Economy 7.1. Changing significance of business cycles related and structural factors in the contemporary economic development Transnational corporations Changing character of capital markets under the influence of modern information and communication technologies Globalization of financial markets and its increasingly autonomous character with respect to real economy (production and distribution of goods and services) Regional economic integration7.2. The need for looking for and defining economic functions of the state in heterodox economic streamsTheory of Sustainable DevelopmentNew Economic HistoryComplexity economicsEvolutionary economics Ordoliberalism ................
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