 Bon dia a tothom, us saludo molt breument en nom del rector, aquí el represento i no he pogut estar aquí, li sap greu. I em limitaré ara, simplement, a impassar-li la paraula el de gaire de la facultat, sense més introduccions, que ens començarà a distribuir també joc, perquè aquí estem per escoltar el professor Gibans i no escoltant-nos nosaltres, senyor de gaire. Gràcies, secretari general. Bon dia, bon dia a tothom. Let me first introduce the table on my right. We have professor Robert Gibans, both from MIT's School of Management, professor there and MIT Department of Economics. Welcome and thank you for giving our opening lecture. We are looking forward for this lecture, I'm sure, and it's going to be for interest for both economics and business and this is the subject of our department, our school, so it's going to be looking forward for your talk. Then next to me I have professor Pelegri Villade, who is representing the UPF Presidential Board. On behalf of our president Joma Casas, unfortunately he couldn't be with us today. Next we have professor Juan José Ganuza, one of our main experts in industrial organization and microeconomic theory, and he will introduce our lecturer today. And on the far left I have Mrs. Villar Miracle, she is Treasury Director at Laboratoris Esteve. Laboratoris Esteve kindly sponsors this lecture, has been doing this for a long time without interruption, even despite there have been some years of difficulties for everybody economically, but they have been always behind this lecture, so we are very thankful for that and thank you for being with us today. So let me say now a couple of words in Catalan for our audience. Continuem en català. Aquesta és la meva segona lliçó inaugural. L'any passat va tocar fer-la, que passi pràcticament immediatament, que havia estat designat per a prop de gada aquesta facultat. Però d'aquesta banda de l'auditori, l'altra banda de l'auditori, vaig estar, evidentment, molts anys, també. Les classes han començat aquesta setmana. Aquest cop és veritablement una lliçó inaugural, inaugurem el curs. És una lliçó entrenyable per la nostra comunitat, d'aquesta l'economia i l'empresa. Fa molts anys, tots els professors que han fet aquesta lliçó, són de primera línia mundial en recerca en l'economia i l'empresa. I bé, voldria parlar dues paraules sobre els reptes que tenim a les nostres graus, a la nostra facultat. Jo crec que són reptes molt importants, mantenir llocs que ocupem de preferència, llocs que ocupem en els rànquings de graus. En l'economia i en l'empresa, sabeu que fa molts anys que ocupem la primera exposició, la primera en l'economia, la segona en l'empresa i la primera també. I aquest any, sorprenentment, també ha aparegut que som primers en comptabilitat i finança. Dic sorprenentment perquè tampoc tenim un grau específic de comptabilitat i finança. Potser sigui per grau d'international business economics que s'associa amb aquesta àrea, però també hem sortit classificats primer en aquesta àrea. Signem prop de mil convenis de pràctiques. 350 estudiants estrangers ens visiten cada any i 350 estudiants nostres van a fora. És la primera universitat en compte de mobilitat i en compte d'oportunitats de pràctiques per als estudiants. Però reptes en tenim molts. Mantenia aquest clima de treball, de rigor, d'excel·lència. Reacrereix una tensió permanent a la marxa dels nostres graus i dels nostres estudis. I hem de, com sempre, continuar millorant. Si sabeu i recordeu que l'any passat, al que s'haig de dir, el lliçó inaugural, jo vaig comentar que teníem plantejat una sèrie de mesures perquè trobar reptes que continuessin motivant els nostres estudiants i els nostres professors i consideressin millorant permanentment. Això s'ha traduit en què hem intentat augmentar el pes en tins de l'evaluació de la capacitat d'escriure, de la capacitat d'analitzar críticament el que s'està fent, i de fugir una mica de tests de múltiples eleccions i aquests tipus de procediments que a vegades som molt mecànics. Intentàvem també millorar... No sé si els estudiants han notat que alguns cursos ha canviat una mica el pes a aquestes coses. A més, he intentat complementar programes acadèmics, complementar activitats complementàries als estudiants. Tot el meu equip de ganes estem convençuts que l'activitat aquesta complementària de relacions personals, de creació d'associacions, de participacions i associacions és fonamental també per als nostres estudiants i això sí que no ho podem fer nosaltres, sinó que és la iniciativa pròpia. Si aneu qualsevol universitat extranjera, veureu que els estudiants participen en milers diferents associacions. Vodríem que aquí fos igual. Un alumnat proactiu que sigui excel·lent en l'àmbit acadèmic i que també tingui aquesta capacitat de relacions personals que valora tant el món professional. Bé, jo aquí acabo perquè tenim avui una lliçó que estem tots esperant d'escoltar. Sots desitjar-vos a tots un molt bon curs i estic segur que tots intentarem posar millor de nosaltres, perquè això continua tirant endavant. No sé si és funcionant. No sé si és funcionant, no? Deixa-me ja. No sé com funcionar. Sobretot en parlant i en sentint, i també... I això és una cosa que tenim aquí. No sé com parlar, si no tinc les lliçons. Bé. Ok, la primera cosa que dic és que estic molt fàcil sobre la lliçó de l'àmbit acadèmic. I per diversos reasons. La primera és que és una lliçó sobre l'economia. Per res, crec que Walter ha mencionat, però és una feina molt unica de la Universitat d'un presentat d'economia, i ho restoparuim tots al dret d'economia. Al dret d'economia és una economització que fa fins i tot un altre dret d'economia, com que ho fa. I després, em sento xocant per això. Però, evidentment, em sento xocant, també. Per a ell. És com si els drets d'economia. El professor de MIT, en una escola de bizarquia, i quan veus que veus la CV, és el que t'especteix de la professora de MIT, que té tons de publicacions en tants journals, que m'ha mentit en moltes importantes persones, que ha fet molts interessos de recerca, però la més important cosa no és el nombre de tants publicacions que tens, sinó que les teves idees tenen un impacte. I crec que la recerca de Robert Gibbons té un impacte molt important, especialment en aquest lloc entre el bizarquia i l'economia. Aquesta és l'idea. Què és una de les grans reasons, per exemple, que tenim en el bizarquia i l'economia? Estem explicant per què hi ha uns firmes que facin més profit que altres. Per què hi ha un firm que m'agrada comparar les advantages? I per què són les sortes d'aquestes advantages per explicar per què altres coses no poden caigar la basicitat de les advantages comparades? Hi ha, per exemple, un exemple domèstic per convèncer les meses. Aquest és clar, un firm que m'agrada comparar les advantages en Espanya. És a dir, això és Mercadona. Mercadona, potser no ho veu, però 15 anys abans, tenen 3% en una regió en Espanya, i ara és líder del mercat de mercat de mercat en Espanya. Tenen un mercat de mercat de 25%. És una història de gran sucess. I, evidentment, tenen una idea molt clara sobre el mercat de mercat. A més, per ser molt, molt bé, es decideixi ser més petit i ser més clara al seu customer. I tenen dins d'això, utilitzant la segona estratègia per tenir només dos productes. El líder del mercat, el gran nom, i per tenir els seus propers productes. Però, volen marxar la qualitat del mercat de mercat. I per fer això, cal obrir molts problemes. Cal complicar els seus propers productes. Per fer una investigació, cal aportar-los a importants productes. Per fer una investigació, cal fer una investigació. Repassem el cap de segons l'estat d'infeeticitat d'innovació, per fer una investigació de desincreases, per fer una investigació de desincreases. Després, Mercadona va ser succesa, basically managing this relational contacte. And this is precisely the message of the main research line of the professor Gimón, how to manage this long-term relationship in order to increase the total surplus, or basically in the case of firms, basically how to manage this relational contact in order to get a comparative advantage, how to improve organizations, and how to improve institutions. Oh, last but not the least, and this is a kind of personal thing to me, is like, I don't know, I am not an economist, I am a physics, you know, I remember very well my first year of master, and I love game theory. And I love game theory. You can imagine, there were several very nice books of game theories, but the one that really catch me was the book of Robert Gimón. Why is that, because he was very precise in the game theory context, but he basically emphasized the application of game theory to the many fields of economics. I think, sorry for that, I don't mean that way, but I am still teaching game theory. I teach my first class, I show to my students, you have all this book of game theory, they are great books, but to me my favorite still is your book. And it is not my personal taste. Let me just finish with the title of the lecture and also the book that is also referred to the capabilities of Professor Givens to make a very nice exposition about the topics, explaining his own research and also the research of others. I have a very co-author who works in the law school here en Pompeu Fabra, Fernando Gómez, I do also law and economics. I am going to tell you a secret. I do contract theory, but the guys that really know about contracts are legal scholars, because they write the contract, they read the contract and they suit the contract. At some point Fernando asked me, do you have some reference about contracts, organization, economics, contracts, and things like that? And Robert is the second time that came to UPF, he came like ten years ago, more or less, and he gave us like a short course with some note that he has about organization and contracts, and now they are available in the web page. And the words of Fernando, that I told you, my question says, is the best thing I have ever read about contracts. Now I understand the perspective about economics, about contracts. And now I am so excited, because next year there will be a new book. I think that for what I know is going to be target to the first year master, like this, but with this title, organizational economics. And this is precisely the title of the lecture today. So then I am really eager to listen to your lecture. And get my slides, or my slides next. Now don't worry about that. Good. Thank you for that, that's the end. We could start at the end, that would be unconventional. There we go. Lovely. Perfect. Thank you. Thank you for this very nice visit and very nice introduction. Ah, hi ha un assaig de Tom Schelling, el famós aplaudiment de Game Theorist, que explica per què no hi hagi ningú que s'estigui a la ràpida, sobretot a la mida de la ràpida. Per tant, hi ha moltes persones que estiguin a la ràpida, hi ha moltes cites a la ràpida. Hi ha un mismatge de supply i demandat. Potser vols l'opció de deixar a la ràpida, però hi ha cites. Per favor, vinga. Ok. És molt bo de ser a la ràpida. Jo només parlo d'una cosa, que és l'organització, doncs és la mateixa que 10 anys abans, i gràcies per l'aigua, perquè puc guanyar. D'acord, he adreçat unes paraules a l'article, que era l'organització de l'economia. Preguntament, és pròximament el que anem a parlar, però crec que en fotos, crec que en fotos estiguin amb les persones. Per tant, em trobo a imaginar el que un lloc em sembla i potser el que aquest lloc em sembla. I doncs, ens en picturarem un lloc aquí. Gràcies per venir. Ok. Jo també ho crec en colors. Totes les dimensions que ens ajuden a mantenir les coses estigues. So, first, I'll just try and come clean about my biases. Second, we'll start talking about organizations. And it really is great to be here exactly for the reasons that have been brought out. Most places don't have this kind of joint contact and interaction between business and economics, right? And that's exactly what I'm hoping to talk about and what we're trying to do at MIT. So, congratulations, you're ahead of the game here. So, you know, I wind up being in the Sloan School of Management on a Tuesday and the MIT Economics Department on a Wednesday and trying to build a field between the two. So, we'll talk about that a little bit, how's that going? We'll talk a little bit about where this field came from and maybe where it's going now. The main point of which will be, actually, markets handle the easy problems. It's organizations and other institutions that we need for the hard problems. And that drives how well they work and what the management challenges are. And so, I'll get to this word that I can't really define. In fact, in the English language literature, I'll quote somebody as counting that there are 160 definitions of culture and that doesn't count the Spanish literature. And, you know, who knows, right? So, where we're headed is ultimately for organizational performance. And, you know, that may be inside an organization or it might be in supply chains and other kinds of relationships. So, that's the organization. Okay, my card's on the table. So, I wake up with two questions every morning. I'm very narrow, very boring. You know, sometimes I ask how my baseball team, the Boston Red Sox, did. But mostly I wake up with these two questions. So, how can an economist help a fixed set of people collaborate better together? And you may have the hint that we're already not in a market because we're talking about how are we going to collaborate together. And then, more institutionally, would economics be any different if we taught first year graduate students or undergraduates more about organizations in particular and institutions more generally? Would we be any better at helping to manage healthcare delivery, thinking about what happens after students arrive in schools, thinking about government agencies. And two weeks ago today, I was at the New York Federal Reserve. And they were interested in their role in supervising the culture of banks that they're regulating. And I said, you know, that's a really hard problem, but let's start with your culture, right? Instead of supervising somebody else's culture, what does it look like to have a culture of supervision? So, I think not only would we fix some existing organizations, but we might think differently about regulation. So, this summer, a friend told me that he was in France and he was interviewed on television and halfway through the interview, the interviewer said, of course, we always want to know who are you arguing against, which is not a question I'd ever been asked or answered or heard of, but I have an answer, right? I think it's interesting that we should be upfront about this. So, I'm arguing against chapter three, okay? So, it may not be exactly chapter three in some books, but I'm concerned about the view that economists mostly think about firms the same way as individuals. So, if your favorite textbook has an introduction in chapter one, and it talks about how we think about consumers in chapter two, and in chapter three when it gets to firms, it says, well, change the variables, but it's pretty much the same optimization problem. Thinking about the firm as an individual, that's where I want to get off. I want to think about those firms differently. I'm not in love with efficient markets in the sense that, I don't think, and we'll talk about a little data to this effect, lots of recent literature and measurements suggest that productivity differences are not competed away quickly, right? There are high productivity firms and low productivity firms within a firm. There are high productivity plants and low productivity plants, right? So, there are problems of performance improvement, and apparently the high-quality firms, the high-performing firms, are not driving the lower performing firms out of existence. So, I think that's worth thinking about. And even as a game theorist, and most of my papers in game theory fail this test, I'm not in love with efficient equilibria, okay? So, if the idea is, yeah, yeah, yeah, where we might be in a repeated game and there might be lots of equilibria, and of course, any sensible pair of people, any sensible group of people will simply pick the most efficient equilibrium, I don't think that's what the data are telling us either, okay? So, I want to be about situations where firms are groups of people, not single individuals, trying to collaborate. It is hard to get to an efficient equilibrium, and that's one reason why the laggards aren't catching up with the leaders, and we could talk later about why the leaders might not also be able to kill off the laggards. Okay, so that's what I'm arguing against. You know, we could almost quit now, right? This is what I do when I wake up in the morning. Okay, so what are these things, organizations? And, you know, thank you for the ability to walk around. Actually, I would prefer to be able to walk up into the middle, and, you know, like an MBA classroom has these tiers and so on, but it's kind of a big step here, so. So what is an organization? So, you know, you can hardly do better on almost any subject than consulting Kenneth Arrow, so let's start there. And this beautiful, if you haven't seen this book, it is absolutely beautiful. It's, you know, small, insightful, beautiful work. And on page 33, he says, organizations are a means of achieving the benefits of collective action when the market isn't enough help, okay? When the market has failed, if you want. So, of course, firms are organizations, but lots of other things are organizations. Social movements are organizations. The legislature is trying to be organized. And, again, you know, supply chains and things like that. I want to think about not only organizations. I think part of what's important to do here is to think about other things that are organized, even if they aren't necessarily organizations. And we'll talk more about that as we go. So then Arrow says, all of these organizations are trying to achieve this collective action through some kind of allocation of resources that isn't a market. Well, there are lots of things that aren't a market, right? We have dictators, planners, committees, coalitions, bup, bup, bup, bup, bup, okay? So, if that's an organization, what does that mean, the topics of organizational economics might be? Well, again, supply chains, there are a lot of things that you could think about vertically. There are other things you could think about horizontally, right? Why is a pharmaceutical firm in lots of different countries, in lots of different aspects of pharmaceuticals? Again, contracts between firms, alliances, networks, all that kind of stuff that happens between organizations. I should say it. So the slides have these references to things that you can click on and I guess we just post the slides too. So you can, yeah. Then on the other side over here, inside of organizations, of course there are issues about power and politics and leadership. Of course there are issues about careers and human resource management and of course there are questions about transfer pricing and resource allocation and should you be functionally organized or divisionally or matrix or that kind of question. And of course, there are all kinds of organizations that aren't firms at all, okay? So that's one way of sort of picturing what the topics of organizational economics might be. I won't go through these next slides in detail but John Roberts and I in the handbook that was just mentioned, posed 24 questions and actually if you have more, I would love to know them. And if you think any of these are solved, I would love to know that too. But you can look at these 24 questions and they start a little bit like over here. They kind of go like this actually, down, down, down, down. So what are the vertical boundaries of the organization? The make or buy problem as it's called. What is bought from outside and then used in production? What is made and inside and then used in production? How are relations with suppliers, for example? Are they arm's length, spot contracting or are they long-term relationships? And so, you can walk through these questions which we pose here in the positive form, right? What is, but of course, there's the equally important normative question. What should be, yeah? So this is just another way of sort of fleshing out this picture. And those slides are up there. We talk about subunits at some point. We talk about hierarchy. We talk about power. We talk about information and decision making and performance measurement. We talk about rewards. We talk about norms, transgressions against norms, corporate culture, leadership. And then we say, huh, and you know, does it matter where you are? Which of course it matters enormously, yeah? Okay, so those are topics. So another person that's worth reading on every occasion, in my opinion, is Herbert Simon. Herbert Simon wrote a beautiful journal of economic perspectives paper in 1991 where he imagined that a Martian has a very special telescope. So the Martian comes to visit Earth and this telescope reveals a certain distinction between social structures, right? It can tell, are you and I interacting in a market or are you and I interacting in an organization? And so it's sort of scanning the Earth with this telescope, right? It flies around and around the Earth and it's picking up one color when it sees a market transaction and a different color when it sees a transaction inside an organization or an interaction inside an organization. And this Martian winds up asking, so why do you guys call that a market economy? Isn't there a heck of a lot of stuff going on inside organizations? And how do you wanna think about that? So again, I actually wanna be a little bit broader than just organizations. I'm interested in organizations. I'm equally interested in things that are organized and as an attempt to define that, let's talk about being designed ex ante and managed ex post, okay? And so that would certainly include contractual relationships between, long run contractual relationships between firms. Okay, so as you go further in this direction, you could say, well, wait a minute, there are more things that aren't markets and they aren't really organizations either. What does an institution mean and how do we think about that? And Arrow's slide is not so far off target for thinking about institutions. I'm gonna skip this mostly. I just wanna highlight it in the next couple of slides. Herbert Simon's Martian, you know, now we send someone from Venus with a different kind of telescope who says, why don't you call this an institutional economy? Lots of things are happening, not just in organizations, not just in things like contracts that are designed ex ante and managed ex post. But, you know, are these markets, right? There's a big literature on school choice, so-called market design. It's not clear to me what's market about market design. You know, it's an allocation mechanism. Is every allocation mechanism a market? Is a dictator a market? So, school choice mechanisms, they look designed ex ante and not managed ex post. They sort of stop, they're static. What about a social network? So that might be not designed at all, but, you know, managed might not be the right word, but it's not clear to me that either of these is a market and I commend to your attention a third thing, not just Arrow, not just Herbert Simon, but this beautiful paper by Avanash Dixit it's his presidential address to the American Economic Association called Governance Institutions and Economic Activity. Okay, so if you wanna think kind of on a bigger scale about institutions, this is the man to start with, in my opinion. Okay, so that's the first two points. So what's happening in this area? So actually a lot. We now have three of us at MIT who all go back and forth on Tuesdays at the Sloan School and Wednesdays in the Economics Department, Mike Winston and John Van Rienen and I, and we teach a whole year-long PhD course in Organizational Economics, and at the end of last year, we had three students search the last five years of nine journals, journals you've heard of in economics, and they came up with 400 papers in the last five years that they thought were related to the course that they just had. Okay, so something's happening out there. I mean, you could talk about how related and so on. So let me just give you a little picture of this, yeah? So now, those topics that I went through. What's the boundary of the firm? What about horizontal integration for conglomerates? What about contracts between firms? What about careers in organizations? You might have thought, and I think you would have been perfectly right to think that careers in organizations, well, I don't know. Is that a topic in labor economics or organizational economics? So I wanna talk about that kind of question for a minute, and so think of this as a satellite view over the rather small field of organizational economics. Okay, so if you had a satellite over Barcelona, France would look small, Portugal would look small, Italy would look small, Africa would look small, right? If you're right over Barcelona, okay? So this is a satellite over organizational economics, and so all these other fields, which are bigger, look small, okay? So sure, there's, I think, an interesting intersection here, studying careers in organizations. There are other topics in labor, like what happens to search behavior if we change the unemployment benefits? That's not an organizational question, but what happens when people are proceeding in a career inside an organization, maybe, yeah? Interestingly, to me, when I started the National Bureau of Economic Research working group in organizational economics in 2002, there almost weren't any people who woke up in the morning and said, I'm an organizational economist. There were lots of people like Edward Lazier and Catherine Shaw who said, yeah, I'm a personnel economist or a labor economist. And there were lots of people in corporate finance like Antoinette Shore and Jeremy Stein and David Sharfstein who said, yeah, I'm a corporate finance person, but I think about resource allocation in organizations. So sure, I'll come think about organizations. There were lots of people in trade, Paul Antrust and Elcanon Helpman and so on. Increasingly there are people in development and political economy. So one of the things that I think is interesting is that these intersections are getting active. The other thing that's interesting is compared to when we started this group, there are now people who self-identify as living in the middle. They say, nope, I'm actually not a labor person or a corporate finance person or an IO person. I'm an organization's person, but I think the intersections are important too. So in fact, coming back to the connections between a management program and an economics program, I think there are lots of connections to other parts of management. Not to all of finance, for example, maybe. Like I don't think there are so many connections to asset pricing, but there are lots of connections to corporate finance. And I don't know that there's so many questions to business unit or competitive strategy, but there are lots of connections to corporate strategy and so on. And finally, one of the things that I find very helpful and very important is the connections to other social sciences. So we have people in political science departments thinking about political economy and we increasingly have people in economics departments thinking about issues that are sometimes called growth or even macro, but also sometimes political economy. So I think there are a lot of connections here. Now, a little bit on those 400 papers. Now, I know many of you are not at the paper writing stage yet, but I think it matters, right? You need to be taught things that economists are sure are true and have known for 200 years, but I think it's also useful to know where's the frontier and where's it moving. So I'm reporting on a little piece of the frontier here. So these are models. The next slide will be data. This is the theory slide. And it's only the AER, okay? And it's just lots of stuff going on. And I would distinguish, you know, I select these. There are other papers in the American Economic Review that are more about contract theory. There are other papers in the American Economic Review that are more about network theory. Those are sort of inputs to organizations, but they're not exactly about organizations. And there are lots of papers that are in other journals that are more about theory and less applied than these, like papers in econometrica. So there's theory going on, fine. There's evidence being accumulated and analyzed, okay? So there's stuff on human resource management. There's stuff on authority. Some of this is experimental. There's stuff on vertical integration, the boundary of the firm. There's stuff on contracts. And there's increasingly stuff on management and productivity. Okay, so that's happening, but that's just me, you know? I'm addicted to organizations. I love it that stuff's happening in organizational economics. I think for most of you, and I think for economics, this slide, well, sorry, that slide, that slide is the most important slide. The last thing I wanna say about this is, how much stuff is happening in the intersections? How much accidental organizational economics is going on? Right, if you go into trade, you know? There are a number of papers that I love for their titles, Harrison White, Where Do Markets Come From, Stephen Kerr, On the Folly of Paying for A, While Hoping for B. There are other papers I love for their first sentence. So Paul Antres' Job Market Paper has the first sentence that says, one third of international trade is within firms. Huh, you know, I never thought about that before, right? I thought it was between countries and then I thought it was between firms and wow, within firm, one third of trade is within firm. And now, you know, just to continue with your famous alum here, now he has this paper with Fritz Foley called Poultry in Motion, not poetry in motion, but so it's about chicken, obviously, right? It's about one large multinational that has hand and glove supply relationships with a lot of buyers all over the world and they're moving chicken around, right? And so he's moved from thinking about the within firm aspects of trade to the managed contracts aspect, right? These are not short run spot contracts we're talking about. In health, you know, healthcare delivery is increasingly a big part of the challenge, not just the study of health insurance markets, but the study of hospitals and other aspects of health delivery. Schools, you know, I think it's fantastic that we're doing this work on school choice mechanisms, which students are gonna go to which schools, now they're in the schools, now what happens, right? Just like there are plants that are performing better and worse, just like there are firms that are performing better and worse, could we imagine that there are schools that are performing better and worse and you know, you wanna go to this one and not that one or you want your kid to go to this one and not that one? And what do you do about that? Public economics, I think public-private partnerships as they're called in the U.S. anyway, contractual relationships between the government and corporations, procurement more generally and the need to adapt, you know, this is an auctions paper that says, well gee, it's easy enough to run an auction to say who's gonna be the supplier, but we can't get the contract right at the date that we run the auction. So now what do we do when we need to adapt, when adaptation needs to occur? Development, the field of economics called development, I think is the most active user of organizational economics in the last few years, unbelievable. Fantastic stuff about, for example, the long-run relationships between farmers in Kenya growing roses and you know, sure, they send some stuff, some flowers into the spot market in let's say Amsterdam, but they also have one or two long-run relationships with buyers there and guess what? On Valentine's Day, the spot price for roses goes ba-ba-ba-ba-ba-bang, right? If you look at the time series of the price of roses in the spot market in Amsterdam, you can see Valentine's Day at the back of the room on a laptop, right? It's way high, raising the question, you're a rose farmer in Kenya, where are you gonna send your roses that week? You're gonna send them to your long-run supplier at a normal price? Or are you gonna send, long-run buyer, excuse me? Or are you gonna send them into the spot market at a humongous price, right? And, you know, to begin to talk about relational contracts and repeated games and reneging, your long-run buyer is not that happy with you if you send all your roses into the spot market. So, you know, these relationships have reneging temptations, if you will. And then finally, just to get towards macro, towards growth, this is a very micro paper by a bunch of international trade people. They're looking at, in this case, French firms, and they're asking, what happens when a firm grows? They're looking at how the organization's structure changes when the firm grows. And the answer is, it adds a layer, right? The ones that are growing well don't just take their current organizational structure and add people. Instead, it adds a layer and they look at which kind of people are in which new layers and so on and so on, but I love the organizational micro details of a more macro growth question. Okay, so what I've tried to say is there's lots of theory going on in about organizational questions as well as about related issues that are sort of inputs to thinking about organizations. There's lots of empirical work directly about organizational questions, but I do think that, you know, looking at some questions in labor is not an organizational issue. Looking at what happens to search behaviors and job finding behaviors when we change the unemployment insurance rate is not an organizational question, but I love it, that trade and development, I guess I don't even have health economics on here, I love it that these intersections are really lighting up, so. Okay, now, that's what is happening as far as I can tell. So what did happen? Where did this come from? I, again, really, if you were gonna take away two things from this morning, for me, anyway, this point C is gonna be one of them. I wanna develop, it's gonna take a few minutes, I wanna develop a framework so that we can see what one might mean by organizations handle the hard problems and see what might follow from that. That would be one thing to take away. The second thing is this bright purple thing down here about culture and performance, but we'll get to that second. Okay, so, actually, it feels like a new field, like I said, when we started that National Bureau of Economic Research Working Group in 2002, there was essentially nobody who self-identified as an organizational economist. We had to build the conference by taking people from around the edges in those other fields. So you might think, well, huh, have economists ever talked about organizations? Well, you can go all the way back, right? So Adam Smith and the Pen Factory, among other things, right? Is certainly talking about organizations and institutions. This guy, Walker, was the first president of the American Economic Association, actually a president of MIT. He's measuring persistent performance differences across seemingly similar enterprises, you know? Frank Knight, Ronald Coase, da, da, da. Here's Arrow's book. And, you know, so there are important things happening kind of into the middle 70s. Really what happens next is we get new model-building tools in agency theory and game theory that then led a thousand flowers bloom, right? And so it's hard to think about some of the issues that Coase and Barnard and Simon and Penrose and even Chandler were thinking about without a way to model them. And so that happens, you know, if you continue the timeline here in 1962, 63, 76, we get the tools in the early 80s and then things open up, okay? So that's where things start. And what I want to do is come back to this picture and talk you through, I think, excuse me, talk you through a sort of conventional view on the left-hand side, excuse me, and then talk you through a perhaps less conventional view on the right-hand side. So you could ask if you were thinking about the maker-buy questions, supply chains, vertical integration, horizontal integration, contracts, alliances, all that stuff. You could ask, is there an animating question for this part of the field? Who posed it and what came next? And I think it's widely agreed that that question is, you can even see this in the quotation from Arrow about organizations are trying to achieve collective action in systems where the price mechanism fails, yeah? So the person is Ronald Coase in 1937 and the question could be posed as, if markets are so good, why do we need firms, right? So we're expecting to see organizations where the market can't do what we want it to do, something like that. And so this is all abbreviated, there are citations at the end of the slides, but Oliver Williamson does a lot of work, Klein, Crawford, and Alcheon do important things, Grossman, Harden, Moore do important things. And so, you know, if you go further in your, maybe the end of your undergraduate education, maybe even earlier for some of you in the business side, you start talking about transaction cost economics and Oliver Williamson and things like that. So this is, I think, very important stuff and a widely shared view of what's happening. I might just add one more note, which is a sort of more modern choice of words, instead of saying if markets are so good, why are there firms, let's keep in our heads a related question, if contracts are so good, why are there bosses, okay? And I think that one is more where the literature is now. Okay, so that's that side. Now honestly, you know, I'm late in coming to this side of the field. I grew up on this side. I grew up thinking about stuff inside of organizations. So let's go over there, let's talk about power and politics and leadership and careers and whether you want to be structured as functional or divisional or matrix organization, that kind of question. And let's ask again, huh, is there an animating question over there? Who posed it and what came next? And honestly, I'm embarrassed that I never asked myself those questions. I was so programmed about the animating questions in green on the left-hand side. I never even occurred to me to wonder whether, you know, is there something happening over there on the right-hand side in purple, right now, about internal organization instead of the boundary of the firm. So for economists, actually, the easiest place to start is down here. So here are a bunch of economists, super well-known, Bank, Holmstrom, Paul Milgram, John, Robert, Jean-Taroll, right? These are not their most well-known papers, okay? This Holmstrom paper is in a book. This Milgram and Robert's paper is in the American Journal of Sociology. And this Taroll paper is in the Journal of Law, Economics and Organization, and in the enormous, beautiful summary of his work by the Nobel Prize Committee, you know, it hardly gets a mention, okay? So these are not the central papers of these highly productive esteemed economists. So the question is, where did their interest in questions of delegation and politicking and culture and collusion, where did their interests come from intellectually? Did they just invent those questions or is there an earlier literature? So here's the animating question I want to give, yeah? So at least in the US, a classic example of a poorly performing organization is the place where you go to get your driver's license renewed, okay? The Department of Motor Vehicles. Now, do you go to a physical place here to get your driver's license renewed? And it's a superhigh performing organization or your, and I mean relative, right? Let's do, even in the space of organizations, this one is low performing, middle, where are we? I see some grimaces. It's not your favorite thing to go over new, okay. So, right, you know, there are lots of organizations that we pick on in the United States, but that would be one, right? So one question is, you know, why are organizations such a mess? And so let's go to the other end of the spectrum, right? We had to have a huge bailout of our car companies, yeah? General Motors needed enormous amounts of support. Is that because the people in General Motors were stupid? Or because the organization couldn't get something done? So I want to offer the idea that, and this is really coming from Jim March, the organization theorist at Stanford. Why could it be, why might it be, that organizations, I'll say, seem less rational than their members? But I actually want to immediately back away from that. I actually, you know, I'm not in love with chapter three, right? I don't want to think about the organization as an individual. So a different version of this question would be, why might it be that in interactions that are organized, rather than happening in a market, that we seem to underperform, that a whole bunch of smart people have a hard time achieving what you might hope they would achieve. And, again, there's a paper by Jim March in 1962, there's a paper in 1966, and there's a beautiful book by Syrod and March. You can see more for the, we did a 50th anniversary of Syrod and March. And here's the sense of this. It's political, right? I mean, I suppose coded words here, for some of you, I'm headed for Aero's theorem, not the Shapley value, right? I'm headed for, we're a group, but we're having a hard time getting our act together, not doing some simple bargaining. So March's 62 paper is another one of those that I love for other reasons as well, but just for the title. The business firm is a political coalition. Okay, that's the view that I want to put forth here. And so here's a quotation from the book, Syrod and March that followed. We've argued that the business firm is a coalition without a generally shared consistent set of goals. For example, imagining that the firm unproblematically maximizes profits is quite different from what they think organizations do. Now, what about inside the firm? Consequently, we cannot assume that a rational manager can treat the organization as a simple instrument, right? What do managers do? Do they just change the organization chart? Do they just change the incentive scheme? Or are they managing a coalition? And how do you do that? And might it take a little more time? So we cannot assume that a rational manager can treat the organization as a simple instrument. This is 1963, so they write in his dealings with the external world, just as he needs to predict an attempt to manipulate the external environmentist must predict an attempt to manipulate his own firm. Okay, and so this political view from March in the 60s, actually flourished in organization theory for 20 years, and then, I don't know, they got bored, they decided they were done, they decided they couldn't go any further without technical tools, and ironically, economics picks it up, right? That's what game theory allowed us to do, is to go start thinking about politics inside of organizations. So to put this a different way, this is a quotation from Abba Lerner in 1972, and I got this from, to connect back to this idea of institutions, I got this from the book by Daron Asamoglu and Jim Robinson called Why Nations Fail, but it's very similar, right? They're wanting people to think about the political difficulties of institutional performance, and I'm hoping that you'll think about the political difficulties of organizational performance. I think it's very similar, the organizations are just at a smaller scale, and so here's Lerner, right? Before Asamoglu and Robinson or anybody else, talking about how an economic transaction is a solved political problem, okay? What he means is we're assuming that we can analyze this tidy domain where political problems have been solved. He goes on to say economics has gained the title of queen of the social sciences by choosing, and then he italicized solved, maybe I would italicize choosing, solved political problems as its domain. Okay, so yeah, I'm here to pitch us that we need to look at the unsolved political problems too at institutional levels like Asamoglu and Robinson and at organizational levels. Okay, so you could think, and again, this literature, here's a paper with Martha Feldman, it's 20 years after 1962 and 63, March and everybody else was pretty much done with this literature in organization theory, and we're just starting, we're gonna bring Mike Spence on signaling and Crawford and Sobel on cheap talk and Milgram and Roberts on influence activities, we're gonna bring game theory in here. So March and Feldman, Feldman and March in 1981 are saying, you know, they give a bunch of cases of little vignettes about organizations like the Department of Motor Vehicles where it's such a hassle to get your driver's license and they have a footnote that says, we've given you six cases, we could have given you 6,000, okay? The list of cases of organizations underperforming is as long as you'd like, so it's possible on considering these phenomena to conclude that organizations are systematically stupid. On the other hand, you could ask yourself, maybe there's something going on here, basically maybe there's a sample selection problem, maybe they're handling the hard problems. So the two last things I wanna do, one of them is to give you a way to think about that sample selection problem, okay? And that's this picture. So imagine that on the x-axis, we're talking about how difficult is the transaction that you and I are trying to have. So for example, if I'm trying to sell you a five pound bag of salt, you know, when I hand it to you and hope that you'll give me 10 bucks for it, you know, you might wanna look underneath and make sure it's not just salt on top and rocks below or something, but you know, you probably don't have to invest in a PhD in chemistry in order to assess the salt, you probably don't have to bring armed guards with you for the, you know, da, da, da, da, da, right? It's pretty easy. And so if your value for the salt is 12 and my cost of delivering it is two, you know, who knows what price we're gonna settle on, but there's $10 of value there if we can make the trade. And I don't think we're gonna lose very much of that value. Again, you're not gonna have to do anything dramatic beforehand like invest in a PhD or pay the armed guards. And so what this green non-integrated curve is saying is if you and I are in different firms, an easy transaction is gonna capture almost all of the available gains from trade, right? Again, if your value for the salt is 12, my cost is two, the gains are 10. Maybe we lost 50 cents and so we're generating 9.50 over 10 and we have a 95% effectiveness. So now out here is a much more difficult transaction. Now suppose I'm trying to sell you an idea. Okay, selling you an idea is much trickier. Now you might have to invest to figure out whether I've told you the right idea. Now you might have to invest in lawyers about, huh, Bob tells me the idea, can he then go sell it to somebody else, right? So do we need contracts about non-compete, da, da, da, da, da, okay. So there are different and much harder transactions out here and again, maybe you and I are separate firms, you know, I've actually done a lot of work with Merck on joint ventures and alliances in the pharmaceutical business on exactly this kind of thing, right? So it's a hard problem writing a contract with a corporate partner out there for trading ideas. So the fact that this green curve, this efficiency measure is falling is just by definition of ordering the transactions from easy to harder and harder. Now, I'm just gonna give you an illustration, not a result. Suppose that we say, well, wait a minute, we don't have to be in two separate firms, right? Maybe somebody can buy both of us and we'll be two divisions in one firm or maybe you can buy my firm and we'll be in one firm that way. What if we're integrated in that sense, right? So Coase's idea, if markets were perfect why would we need firms? Or the more modern statement, if contracts are perfect, why would we need bosses? Is shown here by saying, well, okay. So one idea is let's not do that transfer of ideas between two firms. Let's buy the biotech company and make it one of our R&D labs. And now they're inside the firm and maybe the transaction goes more easily as we were talking about in the introduction. So suppose that if you and I are in one firm that looks like this, then which governance structure, if you will, integrated, we belong to one firm, or non-integrated, we belong to separate firms, is better. Well, for the transactions out here, integration is better. For the transactions in here, non-integration is better. So far, that's a simple sample selection argument. Now let's think about measurement, right? If you looked at the world, you'd say, gee, the places where we see firms, they're not very efficient. You know, their efficiency level is kind of over here somewhere. And the places where we see non-integration, and I'm tempted to use the word market, they're doing great, right? So I call this in other settings, COS meets HECMAN, right? It's a sample selection problem. And obviously you don't want to say organizations do worse than firms. What you want to say in this picture is, organizations where we see them actually do better than the, did I say organizations do worse than firms? Excuse me, you don't want to say here that organizations do worse than markets. You want to say organizations where we see them do better than the markets or non-integration we could see. They do however worse than the contracts we see, but that's a selection problem. That's because they're handling the harder problems, okay? So in order to get to my last point, I'll skip the next couple slides. But another way to summarize all this is, yeah, it could be that in a world of imperfect contracts we do need bosses. But you should not think that buying my firm so that we're inside one firm is gonna solve all your problems. Bosses are not immune to the problems that wreck contracts. Okay, let's move on. And it's really this that I want to move on to. So I have 10 minutes or something like that? Okay, great. So if things are not going so well at your department of motor vehicles, is there hope, right? Is there anything we can do to help a fixed set of people collaborate better together? So now we get this very bright color, okay? So we're moving to this last thing. Okay, so like I said, and I'll repeat, there are gonna be 160 definitions of culture. This is very new stuff. I don't have a clear understanding of it. I'm totally open to help from all kinds of other people and fields. But I think there's an important thing to do here. So I like ending on this. So here's a critic saying that culture is one of the two or three most complicated words in English. I don't know, is it complicated in Spanish? I bet it is. I bet you have more definitions. You know, the typical thing, my knowledge management friend, Larry Prusak, likes to say culture is a weasel word. You can weasel away here. He does not mean that culture is unimportant, quite the opposite. He thinks culture is super important, but it's so easy to say, oh yeah, this organization, it's underperforming, you know, it's the culture, right? And you don't know what it is, and you certainly don't know how to fix it, okay? So don't use culture that way, please. All right, so now there are two ways to proceed here. One way is to think about culture at a national level seeping into an organization and there's lovely work on that. This is by the Dutch sociologist Hofstede who looked at the different ways that IBM sales and marketing offices were organized and performing in different countries. And he managed to explain the differences across countries based on differences that he measured in the country's cultures. So this is the national culture seeping in to the organization. There's lovely work now by Bloem Saden and Van Rienen and others on this kind of question, big outside culture seeping in. For lack of time, I'll skip this. Where I wanna go is this, okay? So this is not national culture, this is organizational culture. And this is my emeritus colleague at MIT, Edgar Schein, who wrote the first book, not only on organizational culture, but so important in his thinking and argument is the second part of the title, right? Organizational culture and leadership, okay? And so his argument is, this is what leaders are supposed to do, is change the culture. So partly because we're short on time, partly because this is an undergraduate lecture, I'm not gonna build you a model, and I don't have a beautiful model to build even the faculty in the front rows here of organizational culture, but suffice it to say the direction that I think the literature is going and the direction that I think, a direction that I think it's productive for the literature to go in, is to think about part of organizational culture as being an equilibrium, okay? Being a shared understanding of the appropriate exercise of discretion. How are you and I supposed to act together? And this equilibrium notion says, well, we better go check the incentive constraints, if you will, in like a repeated prisoner's dilemma or something like that. So I wanna think about the idea that leaders build equilibria from scratch or leaders build better equilibria when the firm is behind, that kind of thing. So I'm gonna tell you one regression, right? I think there's theoretical work to do here and there's empirical work to do here. So this is with a whole bunch of doctors, and you know, somehow they have these norms about who goes first and who goes last, and then there was a political problem about the middle, right, it took us a long time to figure out this ordering. So, okay, so if you go to a hospital, that's not good, you're probably sick. If you then in the hospital get sent to the intensive care unit, that's really not good, you're probably very sick. If you're in the intensive care unit, you're at risk of getting sick a new way that you didn't have when you came there called a bloodstream infection. If you get a bloodstream infection, the probability that you don't leave the hospital, except flat, is like 0.5, okay? So hospitals are very concerned with their bloodstream infection rates, okay? I'm gonna skip, you know, it's just a first difference regression. It's involving this checklist that some of you may have heard of, da, da, da, but very importantly, it's also involving an effort to change the culture in these intensive care units. Let me tell you about this simple first difference regression that happens to be here. So Peter Pronavost, the last author on that paper, did amazing work at Johns Hopkins University getting the bloodstream infection rates down, okay? Then the state of Michigan called up and said, can you help us? They went into Michigan and it's true, it's not the census, it's not every intensive care unit. Any hospital that wanted to participate could, but it's like 89% of patient days. It's almost all the intensive care units in this dataset. So they show up and they say, yeah, you know, doctors should wash their hands and they should use this super strong antiseptic and they should drape the patients when they're changing the catheters that in an intensive care unit give you your medicine and your food. So the checklist is really very simple, right? Wash your hands, remove unnecessary catheters, drape the patient, use a super strong antiseptic. And at Hopkins, the first thing they did was post the checklist and bloodstream infections went down a little. But then the doctor said, we're busy saving lives, which is true. And I couldn't find the antiseptic and I couldn't find the sterile drapes to cover the patient. So they put those things, they put the antiseptic and the drapes on a card and the bloodstream infections fell a little more and then they did the culture change exercise, okay? And the culture change exercise tries to change how we're interacting with each other. So now I give you the regression result. Only then at Hopkins did the bloodstream infections really fall. So in all these intensive care units in Michigan, they did the same thing. They show up in 2004, as I recall, might be 2006, but they show up and they do the checklist and the cart and the culture change exercise. And before they do any of that, they measure the bloodstream infection rate and they ask some questions of the nurses. So one question that's reported here, item 41, as it happens, is they ask the nurses, agree or disagree strongly or weakly with the statement, I frequently have trouble expressing disagreement with staff physicians in this ICU, okay? So is it okay for me to say to you, the doctor, excuse me, did you wash your hands? Okay, so now they come back two years later. They measure the bloodstream infection rate, they ask the nurses a bunch of questions like that. Actually, here's another one. Error reporting is rewarded in this ICU. Here's another one. These are about people who are actually touching the patients. This third one says things like, agree or disagree strongly or weakly, hospital administration does not knowingly put patients at risk, okay? That's about people in suits at the top. It's not about people touching the patients. So what we find in this first difference regression is the ICUs that had a big decline in the bloodstream infection rate are the ones where the nurses answer to the question, I frequently have trouble expressing disagreement, improved. They become not frequently having that problem. They're also the ICUs where the nurses report a big change in their answer to the question, hospital administration does not knowingly put patients at risk. And to do a little econometrics, I know it's early in the morning, you can put them both in the regression at the same time. So it's not one kind of fuzzy, monolithic notion of culture here. They're both significant in the regression. These are different regressions here, but we put them both in. All right, so maybe wrap up in two minutes or something, okay. So what are the bottom lines here? I think it's worth asking yourself, if you're a student and ourselves, if for the faculty, are we being accurate if we talk about the market economy and are we being helpful if we talk about the market economy? Do we need to give students the idea that organizations and other institutions are about as important in creating value as markets are? And isn't it our responsibility to think about that a little bit? I think not only is there some work happening in organizational economics, but in that blue part, as I said before, what I think is really interesting is how many other fields are accidentally doing organizational work. I think this sample selection idea is worth keeping in mind, right? You may look at organizations and go, ugh, what's wrong with those guys? Remember that if it were an easy problem, we might have not integrated. We might have just left it to be a market problem, right? So remember the sample selection issue, Jim March here talking about the politics of things that get organized. And so then the last points. You know, we know from the pronovost efforts at Hopkins and in Michigan and now in a nationwide program, right? Peter Pronovost does not show up at these new hospitals where they're doing this. Nationwide program in the US saving thousands of lives and millions of dollars by, yeah, a checklist, yeah, a cart, and a culture change program. So not uniformly, right? It's the places where the culture did change that lined up with or correlated with the places where the bloodstream infection rate fell. What we see there is it's possible to measure not only, I think, really helpful, sharp outcome measures like the bloodstream infection rate, but also proxies for things like culture, which in the case of the nurses, I'll say, is it okay to disagree? Okay, so I'm gonna talk about that as part of the culture. And lastly, and there's a question mark here, I think we're getting closer to being able to model this stuff. And so that, for me, is an agenda for part of organizational economics. So there we go, okay? Yeah. Thank you very much, Professor Gibbons. We have time for two or three questions. So if anybody wants to ask a question, please raise your hand and you'll get the micro. You have a question down there, on the back? Yeah, we have a question. Merminda, on the back. Is this, yes, it is on. Just a question about one field. You mentioned a lot of interdisciplinary work. You didn't mention evolution once. Sorry, you didn't mention evolution or evolutionary economics at all. So I just wanted to ask, I mean, with reference, for example, to a famous case study, the restructuring of Sears department stores. It's a classic case in 2008. New CEO comes in, he loves Iron Rand, he splits the business into 30 units and gets them all competing directly against each other in this kind of Darwinian sink or swim. That's a question where evolutionary economics can answer, well, using multilevel selection theory, it can say that the phenotype, the adaptive trait that was promoted by that boss was extremely unhelpful to any kind of cohesion and it massively increased transaction costs. So I guess, I mean, without going into detail on that case study, what do you and your colleagues see as the contribution of multilevel section theory and that sort of evolutionary theory to this wider field? I'll be back on here, yeah. So very nice. I mean, you use the word organizational trait. I'm hesitant to anthropomorphize the organization to talk about the organization as having a trait as though it's a personality scale or something like that. And so, sure, an individual might have a trait and the new CEO might have a trait, but I think a complementary piece to the evolutionary argument is, so let's drill down and think about the micro foundations of something that it is tempting to talk about as an organizational trait. How fixed is a trait? Where does it come from? Can you change it and so on? So evolution needs genes in order to know which guys are gonna get selected in and selected out, right? So Nelson and Winter, as you surely know, are thinking about organizational routines as genes. I think I would like to do more on that, right? And I hear the evolutionary stuff as more on the competitive side rather than the trait side, if you will. So the other thing I would say relative to, you know, we were talking about school choice being designed ex-ante, the market design literature, even if it's not managed ex-post, and we were talking about social networks and some of the repeated games work, for example, as maybe not being designed ex-ante, but played or managed or something ex-post. My own interest is less in the evolutionary game theory to the extent that it imagines only one-shot interactions, between, let's say, people who are driving on the left side or the right side of the road or something, right? So there's very interesting work on how conventions might emerge and decay. But as I hope I was hinting, and we talked about even in the supply relationships, I think a very important thing is not the one-shot interactions, but the ongoing ones. I think it's, we have the theory of repeated games that suggests that good things are possible. I think it's hard to achieve and hard to build one of those ongoing relational contracts or repeated game equilibrium. So that's the piece that's got my attention, is how do you do that, rather than the more fleeting interactions that are sometimes the subject of evolutionary game theory? Any other question? Right, just a question on this new book, Chaos Monkeys. It's an interpretation of what happens with the startups up in Silicon Valley. The author of this book says that what you do when you acquire a startup in Silicon Valley is just hiring engineers. In fact, you divide the cost of the startup by the number of engineers that you are getting. So it's not the idea that you want. It's the people that work out there. What do you think that they are taking out of a market that is the labor market that could be a market? And why do you need this intermediate organization and this integration of these two companies in order to do something that we've been doing for many years just in the market? What do you want to take out of the market, this? Good, so if I understand correctly, one alternative would be, I just post more ads on monster.com and say I'm hiring engineers, right? And of course then there's this discussion about Apple and Google and Facebook not rating each other and the little problems like that, right? Now, and of course, some of the acquisitions that argument to one side are run exactly in the opposite way, right? I only want the ideas or the intellectual property or the physical device and the people fairly soon thereafter get fired, right? So there are a lot of scenarios here. Good question, right? I wish there were cases on that. Maybe some of you know, right? I'd like to know, did firm one put up lots of ads on monster.com? Did they not get enough responses? Did they not hire the people that did respond? Did they not feel like the people who they did hire worked out well? And then, so if they're just buying engineers, they're lots of little firms all over, in garages all over Silicon Valley, right? So what's the thinking about which one to buy, right? I don't know, at a completely different scale, I don't know what the merger history in the local pharmaceutical industry looks like, but I was right there watching the merger between Citicorp and Traveller's Group, and the Citicorp people had screensavers that said, it was supposed to be merger of equals, it had co-ceos, da, da, da, da, da. And pretty soon it was obvious that it wasn't a merger of equals, and the legacy Citicorp people had screensavers on their machines that said, this is not an acquisition, this is not an acquisition, right? So thinking about which small set of engineers we buy, whether their current performance level, and dare I say it, their culture matters in the decision to buy them, and how we integrate them, I think, are fabulous questions. And the last question. Ja, sí. Ok, so thank you, thanks so much for the talk. So you pin down the critical problem in Spain, which is we tend to use the world culture as an excuse for unsolved problems, and economists would try to push very much the idea, it's not the culture, it's incentives, you really need to change incentives if you want to fight corruption or if you want to find many other problems. So I wanted to know your view, the connection between culture and incentives, and do you think culture goes beyond incentives? Yeah, great question. So can we stay smaller than corruption? Corruption's a hard problem, but let's just deal with culture and incentives. So I think interests are everywhere, things people care about are everywhere. I think if by incentives one instead means the smaller issue of let's say formal pay for performance, I think that's not everywhere nor should it be, nor do I think that relational pay for performance, discretionary bonuses are everywhere or should be. So I went too fast, we didn't get into what I think the more important relational contracts are, but let's think about the nurses in the ICU, ok? So there are repeated game models of discretionary bonuses as you know, right? And so those are culture if you want, but they're incentives, right? Change my bonus so that I'm not being paid only for short-run results and sacrificing the long-run results. So that's fine. The nurses' pay didn't change in these ICUs, ok? Their willingness to tell the doctor that they think maybe the doctor made a mistake did change. Ok? And so they're sure you could think about that I want to use the word interest, ok? I'm not willing to tell you as the doctor that I think you might have made a mistake if I think I'm going to get certainly fired, I won't talk, but even shunned or shamed or anything else, right? So changing the equilibrium that talks about what's the appropriate exercise of discretion? Should I as the nurse tell you that I think you made a mistake? Should you, as the doctor, blow me up if you're positive that you didn't make a mistake, you know? Is that a change in the incentives? I don't love using that word because I think some people will think it just means changing the bonus plan. Thank you again, Professor Gibbons. We will have Professor Villadee close this lecture. Ok, thank you very much. Thanks, Professor Gibbons, for this splendid lesson. I certainly learned a couple of things. First of all, to avoid motor vehicle departments and hospitals at all costs. And the second thing that I learned is that the problems that I find in my organization, my university, which I think are very specific to us, internal transactions, impossible to cover, et cetera, seem to be rife among the different organizations and institutions in the world. So that's been some consolation for the troubles of someone that tries to face administration problems. Well, listen, I will switch to Catalan to close the act. Jo volia adreçar els estudiants, però ja me han desaparegut quasi tot, o sigui que els que quedeu realment us felicito, sou els que arribareu més al final de tot amb més seguretat. No us volia només dir que tenia coses molt més llarges preparades, però depèn davant d'aquesta fantàstica conferència no em vull allargar. Però sí que us volia dir que la Pompeu Fabra està molt contenta de tenir la facultat d'economia, per l'apartament d'economia, com un dels seus àmbits més importants, tant en recerca com en docència, que aquesta interacció entre docència i recerca és vital, vital per a l'universitat, qualsevol universitat, però especialment per a la nostra, i que els estudiants que esteu ara cursant algun estudi aquí, bueno, teniu una gran sort, l'heu d'utilitzar, l'oportunitat d'estar aquí, el professor Walter García Fontez ens ha explicat abans unes quantes de les bondats de la facultat, n'hi ha moltes, jo crec que no sé si hi ha gent de primer per aquí, ni algú de primer, n'hi ha uns quants, fantàstic, vosaltres aprofiteu que esteu començant amb una universitat jove amb ganes d'establir-se molt més fermament en termes de recerca, amb ganes de millorar com a organització, aprofitant la lliçó del professor Gibans, estem ara enfrontant un curs crucial en una simplificació organitzacional que fem d'una termes, estem fusionant facultats i departaments per tenir un únic centre que permeti, almenys opcionar, suposadament, governar millor la interacció entre els diferents àmbits de la universitat i la propia universitat. Per tant, teniu l'ocasió d'estar en un lloc en aquests moments una mica singular dintre del panorama universitari català i espanyol, i per tant, el que us volia recomanar i dir abans de declarar inaugurat el curs és que l'aprofiteu molt aquest curs, aprofiteu l'aportunitat de tenir fantàstics professors com el professor Gibans, que vindran a explicar-nos coses molt interessants. Teniu una facultat magnífica, professors que estan disposats i que tenen ganes de no només fer classe i explicar-vos quatre coses de manera més o menys obligada, sinó que tenen ganes també d'interaccionar amb vosaltres. Aprofiteu que això és la pompeu, aprofiteu que esteu aquí, tingueu bon curs 2016-2017 i declarem-ho guarda aquest curs i endavant. Moltes gràcies.