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G 202

by: Edward Wuckert I

G 202 BUS

Edward Wuckert I
GPA 3.89

Steven Kreft

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Steven Kreft
Class Notes
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This 0 page Class Notes was uploaded by Edward Wuckert I on Sunday November 1, 2015. The Class Notes belongs to BUS at Indiana University taught by Steven Kreft in Fall. Since its upload, it has received 34 views. For similar materials see /class/233454/bus-indiana-university in Business at Indiana University.


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Date Created: 11/01/15
Topic 1 Notes Corporate Social Strategy Competition makes managers think in terms of outcomes profits sales market share nteracting with nonmarket forces brings importance to processes oversight social welfare CSS is integrating nonmarket forces into your market strategy BP Bought ARCO oil and gas and SOLAREX solar energy Solarex made BP largest solar energy company in world Socially Efficient Production Level Produce and sell product that consumer s value more than the production costs Avoid producing and selling product that consumers value less than production costs Demand is based on the value to consumers Consumer surplus difference between what customers are willing to pay and the price they have to pay Supply is based on the cost to producers Producer surplus difference between the price sellers receive and the minimum supply price needed to cover costs Effect ofTaxes mposed on sellers causes inward shift of supply curve decreases supply and raises cost of production General Result of Taxes government revenue collected ncreased price to buyers consumer surplus decreases Decreased price to sellers producer surplus decreases reduces quantity bought and sold Effect of Subsidies Given to sellers causes outward shift of supply curve increases supply lowers cost of production General Results of Subsidies Decreased price to buyers consumer surplus increases ncreased price to sellers producer surplus increases ncreases quantity bought and sold Effect of Productive Regulation mposed on sellers causes inward shift of supply curve decreases supply raises cost of operation General Results of Productive Regulations ncreased price to buyers consumer surplus decreases Decreased price to sellers producer surplus decreases Decreases quantity bought and sold Public Sector Government Participants Votersassumed to be rationally ignorant costly for you to become informed on most political issues not likely that your individual vote will make a difference Politiciansassumed to be VoteMaximizers regardless of ultimate motivation ability of politicians to achieve goals depends on election thus politicians try to provide info about themselves at no charge to voters Bureaucratsassumed to be BudgetMaximizers not elected but hired into office much like what occurs in private sector seek promotions higher pay etc which all becomes possible with bigger budget Possible Public Sector Inef ciencies Shortsightedness Effect Poiticians support projects with clearly defined current benefits but are not sure of future costs Maximized influence on current voters at expense of future generations Poiticians are biased towards such projects Operational Inefficiency Public sector has no profit motive Reduces incentive for government to keep costs low bureaucrats rarely in position to personally gain from reducing costs bureaucrats are spending other people s money so less conscious of costs LobbyingRent Seeking devoting resources to influence public policy formation in order to bring more income to your interests cost of lobbying can produce inefficiencies if its main affect is solely income redistribution Function of Lobbyists find political opportunities and threats inform politicians and influence public opinion form coalitions identify groups with similar interests Special Interest Effect Small group of people receive benefits at expense of large group Large widely dispersed groups rarely gain power individual costs of taking action often exceed the potential individual benefits Small concentrated groups can gain power individual benefits of taking action often exceed potential individual costs Ex USDA Foreign Advertising Assistance Program bilion dollar budget of federal taxes goes to California wineries almond growers McDonald s etc Types of Political Action MajoritarianNo special interest groups take action on either side of issue Client PoliticsOne special interest group is active in favor of an issue Interest Group PoliticsActive special interest groups are on both sides of the issue Entrepreneurial PoliticsOne special interest group is active against an issue Pharma Case Update 2004Ventria partnered with NWMSU tried to begin producing in state Anheuser Busch opposed of proposition State pulled funding for project 2006Moved to Kansas proposed 3200 acre production site City covered most of startup costs for production Over 1000 oppositions but USDA granted permits first major crop harvested by end of 2007 2008 and on Ventria solidly profitable as production expansion occurred Topic 2 Notes Three Types of Property Communal Property Rights No single own everyone has access overutilization occurs and no one has incentive to conserve for future Government Property Rights property decisions made by a small group of elected political reps Secure Private Property Rights give property owners incentive to create maintain innovate and engage Intellectual Property Rights Patent Right to exclude all others from using producing or selling an invention 1 III an II Ex f 39 39 drugs Trademark Word name symbol or device that is used in trade with goods to indicate their source Used to distinguish goods from competitors Copyright Right to exclude all others from reproducing distributing or performing a work Ex Writing software music art movies music Becker s Criminal Decision Rule Commit crime if expected utility from committing the crime is greater than current utility income Don t commit crime if expected utility from committing the crime is less than current utility Expected Utility Function lnY0GnYoF Y0Current UtilityIncome GPayoff of crime nChance of getting caught FAmount of fine Economic Pro ts Revenue price times quantity sold Costs explicit costs plus implicit costs Explicit costsmonetary payments made wages paid to labor Implicit costsinvolve firms resources but no monetary payment opportunity cost of owners investment Economic Profit Revenues minus all costs mplicit costs are calculated as a normal rate of return Normal rate of Return is what firms could get by investing in businesses with similar risk Topic 3 Notes Role of Entrepreneurs Take risk in order to find what ventures are profitable Entrepreneur Someone who tries to exploit opportunities that exist within markets Offer Create Find Intrepreneur entrepreneurial individual that is employed by a firm Needed to keep ahead of rival firms Needed to improve overall efficiency Effort to keep brightest minds within corporation ncentive to incorporate more profitable projects Economic Freedom Entrepreneurs Growth and Creative Destruction Link between economic freedom and growth Economic Freedom highest with low taxes low regulation secure property amp consistent legal structure Creates environment that is helpful to entrepreneurship Then increased entrepreneurship leads to growth Creative Destruction when entrepreneurial change makes older industries or technologies obsolete Less efficient industries die off frees resources to go into more efficient industries Government can block creative destruction by enacting policies to protect dying industries Con icts of Interest Self Dealing use your position to secure personal benefits Influence Peddling use position to secure benefits for a third party Accepting Benefits receiving bribes or nonmoneta ry gifts Misuse of Inside Information misusing confidential information Misuse ofEmpoyer s Property personally gaining from employers property without consent Outside EmploymentMoonlighting holding multiple positions at one time biases prof behavior Post Employment holding a sequence of positions where you carry bias from one job to the next Transparency International Corruption is the abuse of entrusted power for private gain Petty Corruption Decisions made by lowlevel bureaucrats often centered on local regulations licenses or discretionary spending Grand Corruption Decisions made by highlevel politicians Often centered on national policy formation 39 decisions r 39 39 0 military or allocation of subsidies Perceptions of Corruption Sand Corruption is associated with reduced GDP growth reduced foreign direct investment increased inequality misallocation of government property Oil Corruption helps to speed up commerce in an environment controlled by heavy bureaucracy and excessive regulation Genicon Entered Brazil first experiencing solid returns since late 2009 Early 2010 entered India s southern wealthier states mild success China end of 2010 promising signs in the market Believed Russian registration process was not transparent enough and feared violating US Foreign Corrupt Practices Act G202 Review for Exam 1 Exam 1 is scheduled for Sunday February 19th from 2002m to 4002m The exam will be held in the following rooms in Chemistry CH 033 and CH 122 and Ballantine Hall BH 013 and BH 109 There will be enough seats for everyone but individual seats are on a rst come rst serve basis If the room you show up to looks a little full the other room probably has a lot of space as there will be 200 extra seats MAKE UP Exam 1 is only eligible to those students who e mailed me prior to the one week deadline for notices prior to Sunday February 12th and who have received con rmation from me about their con ict eligibility The Exam 1 makeup will be held on Wednesday February 22nd from 700pm to 900pm room to be listed in an oncourse announcement Exam 1 will consist of 40 multiple choice questions each worth 25 points for a total of 100 points possible I will provide the test paper and the scantron you will just need to bring a pencil and your G202 ID Number I will not ask any all of the above or none of the above questions but there will be some that ask for which statement is correct or which statement is incorrect so pay attention to that I will also highlight important phrases like I have done in the practice problems Finally I will not put any graphs on the exam however there will be some questions that you might bene t from drawing your own graph I will collect both the scantron as well as the exam paper when you are nished so make sure to put your name and G202 ID number on both This review provides a general overview and is to serve as a study guide to point you to material for further review To study for the exam I suggest putting most emphasis on the inclass material and the major case studies 0 First you should review the completed powerpoint slides examples and theories developed in the class lectures hopefully you took good notes and attended class lectures often Second you should review the major required readings especially the case studies paying particular attention to the major strategy aspects we highlighted in our discussions about the various readings You should explore deeper into the concepts and strategies that were highlighted in class by giving the case a solid read after our class discussion is nished Finally the practice problems posted in oncourse are relevant to see the typical test question format Please make sure to check the practice problems after the last class before the exam as they may be updated until that point with quiz questions and other practice questions that I see relevant for your exam preparation Reminder How the readings work for the Test REQUIRED means that you should carefully read the whole reading and make sure that you understand the major ideas presented in the reading as you are responsible for its general content This is especially true for the case study readings OPTIONAL means that you are only responsible for material from these readings that was covered indetail in the lecture and slides So these readings are more to supplement your understanding of the class notes If you have complete notes and fully understand the material that was presented in class you may not need to supplement with these readings This is an individual study choice but nothing will be asked from these readings that was not covered in the lectures Remember the optional reader packet is available through the instructions posted in the syllabus tab of oncourse Topic 1 PEST Framework and Non Market Stakeholders A Corporate Social Strategy i Market focus on outcomes ii NonMarket focus on process B PEST Framework and Integrated Strategy i BP Beyond Petroleum Minicase a BP Pro t Drivers b BP Risks C Market Efficiency and Social Regulators i Definition of Social Efficiency Qe ii Demand Consumer Value iii Supply Productive Costs iv Inefficiency below Qe v Inefficiency beyond Qe D The effect of taxes i Effects on Price Output CS and PS ii Efficiency implications E The Effects of Subsidies i Effects on Price Output CS and PS ii Efficiency implications F The effect of productive regulation i Effects on Price Output CS and PS ii Efficiency implications G Public Sector Participants i votertaxpayers ii politicians elected officials iii bureaucrats civil servants H Possible Government Inefficiencies i The shortsightedness effect ii Operational inefficiency iii Rent seeking behavior a function of lobbyists iv The special interest effect V For each government failure you should know the causes of the government failure and the implications for efficiency I Types ofpolitical issues i Majoritarian ii Client iii Interest Group iv Entrepreneurial v For each political issue you should know the implications for interest group activity and implications for lobbying J Readings i REQUIRED The Power of Organized Interests and Farming Pharmaceuticals Ventria Bioscience and the Controversy over Plant Made Medicines ii OPTIONAL The analysis of competitive markets Political Analysis for Business and The Economics of Collective Decision Making Topic 2 Global IP Management in the Face of Weak Property Right Regimes A Three types of Property Rights i communal ii government iii private a benefits of secure private property b intellectual property rights patents copyrights and trademarks B Criminal Incentives as modeled by Gary Becker i Current and expected utility functions C Criminal decision rule what will rational criminals do under different situations i EUltU ii EUU iii EUgtU iv Implications if the standard rule is changed to be dependent on a percent gain in expected income D Variables of Interest i size of the punishment ii probability of being caught iii Payoff of the crime iv Income E Application to Fake IDs F Application to Online File Sharing i Problem with Global Enforcement G Readings i REQUIRED Online Music Distribution in a Post Napster World ii OPTIONAL Private property freedom and the west and Customized Class Notes Topic 3 Non Market Strategy and International Expansion A Pro ts revenues and costs i Explicit costs ii Implicit costs iii Normal rate of return iv Economic pro t versus accounting pro t B Role of entrepreneurs and intrepreneurs C Entrepreneurs Economic Growth and Economic Freedom i De nition of Economic freedom ii Causality Freedom causes Entrepreneurs which causes growth D Entrepreneurs and creative destruction E De nition of Con ict of Interest COI i Key Elements of C01 ii Types of C01 F Transparency International and Global Corruption i Types of corruption grand vs petty ii Perceptions of corruption grease vs sand G Readings i REQUIRED Genicon A Surgical Strike into Emerging Markets ii OPTIONAL Ethics and Con ict of Interest Topic 7 Growth Versus Sustainability CASE Anatomy of a Corporate Campaign RAN and Citigroup Online Citigroup Case Discussion 1119 1130 Opens the Wednesday before Thanksgiving Break and then closes at midnight the Sunday night that ends Thanksgiving Break Inclass Citigroup Case Debriefing 121 III KELLEY SCHOOL OF BUSINESS INDIANA UNIVERSITY I GZOZontheBEAT Ill INDIANA UNIVERSITY Profit Drivers of Sustainability Strategic Sustainability When firms incorporate sustainable business ventures in an effort to increase profits Improve internal efficiencies cost reductions First mover advantage with industry technology Manage regulatory risks Preempt stall or shape future regulation Take advantage of government subsidies Manage growing social risks and opportunities NGOs Enhance brand equity and corporate reputation Differentiate from competitors Tap into new customer or position for new markets Employee retentionrecruiting concerns Attract greenlsociallyminded investors Ill INDIANA UNIVERSITY External Damages External Damages A firm s production imposes costs on a third party without their consent Supply underestimates the true production costs From the view of efficiency too many units are produced MSC MPC MEC MEC P MPC Mquot MP3 MP0 eijjjjjjjjj MPB MSB Q9 Qf Output Ill INDIANA UNIVERSITY Incentive Mechanisms to go Green Government Taxation Tradable Pollution Permits Assign Accountability for Waste Subsidize Green Technology Green NGO incentives and pressures Ill INDIANA UNIVERSITY External Damages and Taxation Government will tax to decrease supply and increase consumer prices Set the tax MSC MPC MEC a tax MPC MPB MSB Q9 Qf Industry Output Ill INDIANA UNIVERSITY Tradable Pollution Permits Government issues pollution permits that pertain to a permissible level of pollution and then government lets the firms trade the permits as needed The permit specifies the type of pollution amount of pollution and time period of use Permits can be given out to firms for free or they can be initially auctioned or sold to the firms in the industry Pollution permit model assumptions One unit of output produces one unit of pollution Q Pollution Marginal Abatement Costs MAC are measured as lost profit from decreasing output to reduce pollution no other technology is available Ill INDIANA UNIVERSITY Tradable Pollution Permits The total industry supply of pollution permits S is split among the existing firms in the market S 1 2 and permits are traded at the going market price P 81 82 Initial Cost Savings from Profits Pro ts Gamed from ying Permits Selling Permits lnItIal Abatement lnitial Abatement 13 CQsts Q1 Q1 Permits Sold PrOfitS Permits Purchased Ill INDIANA UNIVERSITY Tradable Pollution Permits Nice features of tradable pollution permits The overall level of pollution will be More permits go to those firms who Low abatement cost firms can gain Environmental groups can Criticism of tradable permits The initial allocation of permits may go to the Ill INDIANA UNIVERSITY Accountability and Incentives Assigning accountability for a firm s waste can alleviate external damages Secondary markets for waste products will evolve Examples Cows now eat spent beer grains over sweetened Reese s Puffs and burnt PopTarts college student diet Governments can offer subsidies to firms to encourage more investments in green technology Examples Tax Credits for green investments Grant money for green RampD GovernmentIndustry Partnerships Ill INDIANA UNIVERSITY Green NonGovernmental Organizations Green NGOs strategically target companies to evoke industry wide movement toward green technology Some green NGOs partner with industry to collaborate on green technology and certifications Share in RampD expenditures Environmental Defense Certify Green Features US Green Building Council LEED Other green NGOs attack industry to force green technology adoption Negative PR campaigns and Boycotts Greenpeace and Rainforest Action Network Ill INDIANA UNIVERSITY RAN versus Citigroup Why did RAN target Citigroup Think about the characteristics specific to Citigroup that made them a viable target Could RAN have looked at other targets than banks like logging companies or government regulators Would these nonbank targets be more or less effective Think about the tactics of RAN and discuss what RAN did correctly in this campaign In addition to picking a good target think about the leverage points RAN focused on and think about the demands that RAN placed on Citigroup ls RAN finding effective leverage points Is RAN making reasonable demands Ill INDIANA UNIVERSITY RAN versus Citigroup Given the risks and rewards potential with project finance weigh the merits of each of Citigroup s options in responding to the demands of RAN Do nothing and ignore the campaign till it goes away Delayl Negotiate over minor changes Enter into some negotiation over more significant change Pull out of funding environmentally destructive projects Two outside events occurred in 2002 i Enron scandal and ii Jack Grubman CitigrouplSalomon Smith Barney Analyst biased research scandal What impact would these outside events have on the RANCitigroup campaign Does it sway strength to one side or the other If you were RAN do you see an opportunity Case Update posted after our inclass debrief Ill INDIANA UNIVERSITY RAN versus Citigroup UPDATE CEO Sandy Weill targeted heavily in 2003 Home Town Showdown at Greenwich Connecticut Weill s hometown putting up Wanted posters of Weill Cornell class of 55 Make us proud Stop funding destruction 2500 letters from children across the US asking him to stop funding global warming and forest destruction Robert Rubin former Treasury secretary and Citigroup board member targeted at Columbia University RAN How can you justify a pipeline through the Ecuadorian rainforest Rubin The pipeline is not a Citigroup project RAN Isn t in true that you are funding it Rubin Yes we are funding it Susan Sarandon Ed Asner and Daryl Hannah cut up their Citigroup cards on a NYC TV commercial Ill INDIANA UNIVERSITY RAN versus Citigroup UPDATE Late 2003 RANCitigroup entered into a cease fire and eventually Citigroup adopted the Equator Principles EPs The EPs were developed by World Banks and the International Finance Corporation to establish environmental and social impact risk assessment standards applicable to project finance RAN applauded Citigroup s efforts but asked for more 2004 New Citigroup CEO Chuck Prince announced Citigroup would adopt standards that go beyond the EPs Citigroup would report confidential information on all its project finance activities to RAN on a quarterly basis Why Citigroup used RAN as a risk assessmentmitigation advisor because environmental risk shows up as financial risk especially with project finance


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