DEFINITION of 'Organizational Economics'

A branch of applied economics that studies the transactions that occur within individual firms, as opposed to the transactions that occur within the greater market. Organizational economics is broken down into three major subfields: agency theory, transaction cost economics and property rights theory. Courses in organizational economics are usually taught at the graduate or doctoral level.

BREAKING DOWN 'Organizational Economics'

Organizational economics is useful in developing a firm's human resource management policies, determining how a firm should be organized, assessing business risk, implementing rewards systems and making, analyzing and improving management decisions. For example, organizational economics could be used to assess why the 2010 BP oil spill in the Gulf of Mexico was able to occur and how a similar disaster could be prevented in the future.

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