# 🗄️🐅 - 14.282 Enhanced Module Guide > *"Visible hands build equilibria through incentives, authority, and relationships"* --- ## 📖 How to Use This Guide This enhanced guide adds **Critical Insights Tables** inspired by [[23_15357]]'s format: - 💡 **Critical Insight**: The "aha!" moment from each concept - 🔑 **Memorable Takeaway**: One-liner to remember - 🏆 **Application**: Real-world or research application --- ## Module 1: Pay for Performance 🐢 ### 📚 Core Concepts | **Concept** | 💡 **Critical Insight** | 🔑 **Memorable Takeaway** | 🏆 **Application** | | -------------------------- | ------------------------------------------------------- | ------------------------------------ | -------------------------------------------- | | **Moral Hazard** | Agents choose hidden actions that affect outcomes | "Can't see effort → pay for luck" | Why founders need equity, not salary | | **Multi-tasking** | Multiple tasks → effort distortion toward measured ones | "What gets measured gets gamed" | Why pure KPIs hurt innovation | | **Career Concerns** | Future reputation incentivizes current effort | "Work hard today, shine tomorrow" | Why junior researchers hustle without tenure | | **Relational Contracts** | Self-enforcing promises based on future rents | "Trust needs tomorrow's profit" | Why long-term partnerships work | | **Subjective Evaluation** | Boss's discretion complements hard metrics | "Numbers + judgment > numbers alone" | Why Google uses OKRs + manager feedback | | **Tournaments** | Rank-based pay motivates competition | "Winner takes most" | Why sales teams have leaderboards | | **Team Incentives** | Free-riding problem in team production | "Everyone's job = nobody's job" | Why startups need individual accountability | | **Control vs. Incentives** | Strong relationships enable control, not just pay | "Trust unlocks orders" | Why VCs do more than write checks | ### 📜 Key Papers | **Paper** | **One-Line Insight** | **Research Application** | |-----------|---------------------|-------------------------| | [[📜holmstrom79_moral_hazard]] | Risk-averse agents demand insurance premium for incentive pay | Design VC contracts with option value | | [[📜holmstrom91_multitask]] | Can't measure innovation → pay flat salary + relational bonus | Why R&D teams need autonomy | | [[📜holmstrom82_career]] | Reputation markets provide implicit incentives | Model researcher effort without grants | | [[📜levin03_relational]] | Self-enforcing contracts require patience | When do startup-investor relationships sustain? | | [[📜bgm94_subjective]] | Subjectivity reduces gaming but requires trust | Design performance review systems | | [[📜lazear81_tournaments]] | Competition motivates but can destroy cooperation | When to use competition in teams | | [[📜holmstrom82_teams]] | Need budget-breaking to solve free-riding | Design founder equity splits | | [[📜bgm23_control]] | Strong relationships → shift from incentives to control | Evolution of startup governance | --- ## Module 2: Managers & Productivity 🐙 ### 📚 Core Concepts | **Concept** | 💡 **Critical Insight** | 🔑 **Memorable Takeaway** | 🏆 **Application** | |-------------|------------------------|--------------------------|-------------------| | **Management Practices** | Simple practices (targets, monitoring, feedback) boost productivity | "Best practices travel" | Why Y Combinator teaches same playbook | | **Practice Adoption** | Information + incentives + capacity constraints explain adoption | "Know-how ≠ can-do" | Why MBA doesn't guarantee success | | **CEO Time Allocation** | CEOs spend time where marginal product is highest | "Where you spend time = what matters" | Track founder time to predict pivots | | **Pollution Shocks** | External shocks reveal management quality | "Crisis shows who's managing" | Test startup resilience during downturns | | **Gender & Management** | Women managers face both skill gaps and discrimination | "Barriers are both real and perceived" | Design interventions for women founders | | **Management RCTs** | Causal evidence: management practices → 17% productivity gain | "Management matters, causally" | Experiment with management interventions | ### 📜 Key Papers | **Paper** | **One-Line Insight** | **Research Application** | |-----------|---------------------|-------------------------| | [[📜bloom13_management_india]] | RCT shows management consulting → 17% productivity gain | Can management coaching help startups? | | [[📜bloom19_management_drivers]] | Competition + ownership + human capital → better management | Why competitive markets force better practices | | [[📜bandiera20_ceo]] | CEOs allocate time to production vs. organization building | Model founder time allocation decisions | | [[📜akn22_management_shocks]] | Air pollution reduces productivity; good managers mitigate impact | How do founders handle external shocks? | | [[📜macchiavello20_women_managers]] | Women face skill gaps + discrimination in management roles | Design support for women entrepreneurs | --- ## Module 3: Delegation & Communication 👾 ### 📚 Core Concepts | **Concept** | 💡 **Critical Insight** | 🔑 **Memorable Takeaway** | 🏆 **Application** | |-------------|------------------------|--------------------------|-------------------| | **Formal Authority** | Legal right to decide | "Who signs the check" | Founder equity → decision rights | | **Real Authority** | Actual power to influence decisions | "Who really decides" | Why CTOs control tech stack | | **Informal Authority** | Relationship-based influence beyond formal rights | "Influence without title" | Why advisors matter for founders | | **Influence Activities** | Agents lobby to affect decisions → costly distortion | "Politicking wastes resources" | Why open-door policies can backfire | | **Delegation** | Give decision rights to informed agents | "Empower those who know" | When should founders delegate? | | **Communication** | Sharing information shapes collective decisions | "Talk changes minds" | How do board discussions work? | | **Knowledge Flows** | Information spreads through networks | "Who you know = what you know" | Why startup location matters | ### 📜 Key Papers | **Paper** | **One-Line Insight** | **Research Application** | |-----------|---------------------|-------------------------| | [[📜aghion97_authority]] | Boss has formal authority, but expert has real authority | Model founder-CTO relationship | | [[📜bgm99_informal]] | Relationships create informal authority beyond contracts | Why trust matters in delegation | | [[📜milgrom88_influence]] | Agents waste resources lobbying for favorable decisions | Design organizations to minimize politics | | [[📜bandiera21_delegation]] | RCT: delegation increases productivity when managers can monitor | When should founders delegate? | | [[📜kala24_autonomy]] | Autonomy boosts performance but requires capability | Give authority to capable employees | | [[📜kala25_persuasion]] | Communication changes beliefs and decisions in households | How do co-founders negotiate? | | [[📜sandvik20_knowledge]] | Knowledge flows through workplace networks | Why co-location matters for learning | --- ## Module 4: Boundary of the Firm 🐅 ### 📚 Core Concepts | **Concept** | 💡 **Critical Insight** | 🔑 **Memorable Takeaway** | 🏆 **Application** | |-------------|------------------------|--------------------------|-------------------| | **Transaction Costs** | Markets have costs (search, bargaining, enforcement) | "Markets aren't free" | Why firms exist instead of freelancers | | **Hold-Up Problem** | Relationship-specific investment → ex-post bargaining → underinvestment | "Vulnerable partner underinvests" | Why Tesla vertically integrates batteries | | **Asset Ownership** | Owner gets residual control rights | "Ownership = tiebreaker rights" | Why founders fight for equity | | **Property Rights Theory** | Ownership affects ex ante investment incentives | "Own it → improve it" | Design equity splits for co-founders | | **Influence Costs** | Internal politics shape integration decisions | "Politics inside vs. contracts outside" | When outsourcing avoids politics | | **Vertical Integration** | Own suppliers when coordination matters more than competition | "Control the bottleneck" | When startups should build vs. buy | ### 📜 Key Papers | **Paper** | **One-Line Insight** | **Research Application** | |-----------|---------------------|-------------------------| | [[📜coase37_nature]] | Firms exist because organizing beats repeated market transactions | Foundational: why organize anything? | | [[📜williamson71_integration]] | Hold-up problem → vertical integration | Model startup supplier relationships | | [[📜williamson79_tce]] | Transaction attributes determine governance structure | Match governance to transaction type | | [[📜gh86_ownership]] | Asset ownership provides residual control rights | Design founder equity structures | | [[📜hm90_property]] | Property rights affect investment incentives ex ante | How ownership shapes innovation | | [[📜powell15_influence]] | Internal politics shape make-or-buy decisions | When to outsource to avoid politics | | [[📜atalay14_vertical]] | Vertical integration primarily about controlling inputs, not outputs | What drives integration empirically? | | [[📜braguinsky15_acquisitions]] | Acquisitions transfer tacit knowledge and capabilities | Why acqui-hires work | | [[📜banerjee19_outsourcing]] | Private outsourcing can outperform public provision | Privatization vs. integration trade-offs | --- ## Module 5: Governance of Non-Integration 🐢 ### 📚 Core Concepts | **Concept** | 💡 **Critical Insight** | 🔑 **Memorable Takeaway** | 🏆 **Application** | |-------------|------------------------|--------------------------|-------------------| | **Relational Contracts** | Self-enforcing promises sustained by future rents | "Tomorrow's profit enforces today's promise" | Why repeat business relationships work | | **Supply Shocks** | External shocks test relationship strength | "Crisis reveals true partners" | Test investor commitment during downturns | | **Competition Effects** | Competition can undermine relational contracts | "More options = less commitment" | Why exclusive partnerships sustain | | **Strategic Default** | Agents default when outside options improve | "Better deal = broken promise" | Model supplier loyalty | | **External Enforcement** | Third-party monitoring complements relationships | "Audits + trust > trust alone" | Why ESG standards help supply chains | | **Formal-Relational Mix** | Contracts and relationships complement each other | "Paper + trust > either alone" | Design hybrid governance | ### 📜 Key Papers | **Paper** | **One-Line Insight** | **Research Application** | |-----------|---------------------|-------------------------| | [[📜aghion94_innovation]] | Control allocation affects innovation incentives | Who should control R&D direction? | | [[📜bgm02_relational]] | Relational contracts and firm boundaries co-determine | Why relationships substitute for integration | | [[📜mm15_kenya_roses]] | Supply shock: relationships preserve trade when formal contracts fail | Value of repeat business in crises | | [[📜mm21_rwanda_coffee]] | Competition undermines relational contracts | When competition hurts cooperation | | [[📜blouin19_default]] | Strategic default when outside options improve | Model supplier switching | | [[📜boudreau24_osh]] | External enforcement (OSH committees) improves compliance | How third parties sustain cooperation | --- ## Module 6: Capabilities & Culture 👾🐙 ### 📚 Core Concepts | **Concept** | 💡 **Critical Insight** | 🔑 **Memorable Takeaway** | 🏆 **Application** | |-------------|------------------------|--------------------------|-------------------| | **State Effectiveness** | Performance depends on both individuals and organizational systems | "Talent + system = output" | Why hiring great people isn't enough | | **Organizational Capacity** | Systems and processes matter beyond individual talent | "Process beats genius" | Build scalable operations | | **Bureaucratic Performance** | Subjective evaluation shapes bureaucrat effort | "Evaluation systems change behavior" | Design performance reviews carefully | | **Recognition vs. Rewards** | Non-monetary recognition can motivate as much as money | "Status = currency" | Why employee-of-month programs work | | **Management Complementarities** | Practices work together, not in isolation | "Bundle beats cherry-picking" | Adopt management systems holistically | | **Culture Effects** | Societal culture affects organizational practice effectiveness | "Context shapes what works" | Adapt practices to local context | ### 📜 Key Papers | **Paper** | **One-Line Insight** | **Research Application** | |-----------|---------------------|-------------------------| | [[📜bhs23_state_effectiveness]] | Individual talent matters, but organizational systems matter more | Separate people effects from system effects | | [[📜dejanvry23_china]] | Subjective evaluation shapes bureaucrat behavior | How evaluation systems affect effort | | [[📜kala25_recognition]] | Employee recognition boosts performance like monetary rewards | Design non-monetary incentive systems | | [[📜bgp20_contingent]] | Management practices have complementarities and contingencies | Why isolated interventions may fail | --- ## 🎯 Research Application Matrix | **Research Question** | **Relevant Module** | **Key Papers** | **Battlefield** | |---------------------|-------------------|---------------|----------------| | How to incentivize startup experimentation? | M1 | Holmstrom 1991, Manso 2011 | 🐢 Innovation | | When should startups outsource vs. build? | M4 | Coase 1937, GH 1986 | 🐙 Operations | | How do founder teams delegate decisions? | M3 | Aghion 1997, BGM 1999 | 👾 Cognition | | What sustains VC-startup relationships? | M5 | BGM 2002, MM 2015 | 🐢 Innovation | | Why do management practices vary? | M2 | Bloom 2013, 2019 | 🐙 Operations | | How does organizational culture emerge? | M6 | BHS 2023, BGP 2020 | 👾 Cognition/🐙 Operations | | What drives transaction cost differences? | M4 | Williamson 1979, Powell 2015 | 🐅 CompBayes | --- ## 💡 Meta-Insights Across Modules ### 🔄 Formal-Relational Interaction **Pattern**: Formal contracts and relational contracts are **complements**, not substitutes - M1: Incentive pay + career concerns - M3: Formal authority + informal authority - M5: Contracts + relationships - M6: Evaluation systems + culture **Memorable**: *"Paper and trust work together"* ### 🌐 Boundaries Are Endogenous **Pattern**: Integration decisions depend on transaction costs, hold-up, and relationship strength - M4: Integration when hold-up is severe - M5: Non-integration when relationships sustain cooperation **Memorable**: *"Own it when you can't trust the market"* ### 👥 People + Systems **Pattern**: Performance = individual talent × organizational capacity - M2: Management practices × manager quality - M6: Individual bureaucrats × state systems **Memorable**: *"Genius in a bad system fails; mediocrities in a good system succeed"* --- ## 📖 How This Enhances Your Research ### For 🐢 Innovation Research - **M1**: Design incentives for R&D and experimentation - **M5**: Model startup-investor relational contracts - **Insight**: *Innovation needs long-term incentives and trusted partnerships* ### For 🐙 Operations Research - **M2**: Understand management practice adoption and impact - **M4**: Model make-or-buy decisions - **M6**: Design scalable organizational systems - **Insight**: *Operations excellence = practices × systems × culture* ### For 👾 Cognition Research - **M3**: Model information aggregation and delegation - **M6**: How beliefs and culture shape behavior - **Insight**: *Cognition is embedded in organizational context* ### For 🐅 CompBayes Research - **M4**: Quantify transaction costs and property rights value - **Insight**: *Compute optimal boundaries under uncertainty* --- *"From incentives to authority to relationships: Visible hands build equilibria that invisible hands cannot"* - Adapted from Gibbons (2025) ← [[14_282_org_econ]] | [[🗄️🐢🐢_14282_modules]]