The Future of Managerial Economics

5 January 2011 at 11:46 pm Peter G. Klein 2 comments

| Peter Klein |

The December 2010 issue of Managerial and Decision Economics features an editorial by Paul Rubin and Tony Dnes on the state of the field, “Managerial Economics: A Forward Looking Assessment.” As they note, the “traditional approach” — basically applied neoclassical microeconomics, production theory in particular — has been augmented by new developments,

particularly in areas such as globalization, the economics of organization, information economics, strategic behavior, the learning organization, risk management, business ethics, and behavioral economics. All of these topics are hot in modern managerial economics and are slowly feeding through into MBA and similar courses.

The modern trends are often referred to as “the new managerial economics.” Some modern texts even use the term explicitly (Boyes, 2008) and focus on questions of “organizational architecture” including areas such as incentive structures in personnel economics. There are increasing numbers of specialist works emerging in these areas, which are coming to feature in influential handbooks (Lazear, 2009). Personnel economics, for example, applies economics to human resources topics, including information interactions, problems of team coordination, morale, and seniority systems. . . . In managerial terms, this field is a natural development of the economics of organization and of labor economics, and we hope to see much future research coming through.

In the “new” managerial economics, I think, the lines between managerial economics, competitive and corporate strategy, organization theory, HRM, and other applied topics in business administration are increasingly blurred. I teach an undergraduate managerial economics course that is more like a strategy and organizations class. I use the Brickley et al. text, Managerial Economics and Organizational Architecture, and could just as easily use Economics of Strategy by Besanko et al., Lazear’s personnel economics text, or any of the standard undergraduate strategy texts, without changing the focus of the course.

In short, I like MDE (and sit on the editorial board) but wonder if there really is a “managerial economics” field any more. Many papers appearing in MDE might fit just as well at SMJ or Organization Science or, depending on the technical economics content, the RAND Journal or an operations journal.

Entry filed under: - Klein -, Management Theory, New Institutional Economics, Strategic Management, Theory of the Firm.

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2 Comments Add your own

1. David Hoopes | 6 January 2011 at 12:43 am

Well, there’s certainly room for a journal that’s more oriented towards economic logic than Org Sci and or even SMJ.
2. Warren Miller | 9 January 2011 at 11:37 am

I think that there is room for ‘Managerial Economics,’ Peter, if only because not having such courses leaves the entire playing field to the homodox economists. That would be a shame.

My greatest frustration 25 years ago as a Ph.D. student, and even further in the past as an undergraduate, was that I intuitively knew that the economics I was being taught had little real-world basis. It started with “the firm as a production function” and went downhill from there. On the macro side, there’s the true voodoo economics of IS/LM curves and the like. If there’s a difference in predictive results between econometrics and astrology, I’ve never spotted it.

So, for the sake of the students, if for no other reason, I believe that managerial economics courses such as the one you’re teaching offer huge benefits to students at all levels. And, just on principle, I’d hate to default the economics curriculum to the homodoxers.