Costs and Vertical and Horizontal Integration

Learning outcomes:

LO5: Identify the costs and benefits of vertical and horizontal integration.

LO6: Show how institutions can address policy problems.

Name:

1. Instructions and guidelines (Read carefully)

Instructions

1.     Insert your name and surname in the space provided above, as well as in the file name. Save the file as: First name Surname M3 U3 Activity Submission – e.g. Lilly Smith M3 U3 Activity Submission. NB: Please ensure that you use the name that appears in your student profile on the Online Campus.

2.     Write all your answers in this document. There is an instruction that says, “Start writing here” under each question. Please type your answer there.

3.     Submit your assignment in Microsoft Word only. No other file types will be accepted.

4.     Do not delete the plagiarism declaration or the assignment instructions and guidelines. They must remain in your assignment when you submit.

PLEASE NOTE: Plagiarism cases will be investigated in line with the Terms and Conditions for Students.

IMPORTANT NOTICE: Please ensure that you have checked your course calendar for the due date for this assignment.

Guidelines

1.     There are 7 pages and 2 questions in this assignment.

2.     Make sure that you have carefully read and fully understood the questions before answering them. Answer the questions fully but concisely and as directly as possible. Follow all specific instructions for individual questions (e.g. “list”, “in point form”).

3.     Answer all questions in your own words. Do not copy any text from the notes, readings, or other sources. The assignment must be your own work only.

Plagiarism declaration:

1. I know that plagiarism is wrong. Plagiarism is to use another’s work and pretend that it is one’s own. 2. This assignment is my own work. 3. I have not allowed, and will not allow, anyone to copy my work with the intention of passing it off as his or her own work. 4. I acknowledge that copying someone else’s assignment (or part of it) is wrong, and declare that my assignments are my own work.

2. Mark allocation

Each question receives a mark allocation. However, you will only receive a final percentage mark and will not be given individual marks for each question. The mark allocation is there to show you the weighting and length of each question.

Question 1                                                                                                              6

Question 2                                                                                                              12

TOTAL                                                                                                       18         

3. Questions

Having explored the content covered in the module, you should now be more familiar with delegation relationships and the opportunities and costs of these relationships. You have also learnt about the institutional design strategies used to address the principal–agent problem. Apply the knowledge you have gained from the module, as well as your own insights, to the questions in this assessment. You must answer both questions.

Question 1

Talia owns the largest producer of ice cream in Easteros. She currently relies on several small manufacturers to produce the packaging for her products. She has contracts with each of her manufacturers and has quarterly meetings with them to discuss business for the next quarter. Other than this interaction, she has little oversight over their work.

Over the last year, Talia’s business has boomed, and she is wondering whether she should begin packaging her product in-house. Write a brief recommendation to Talia, highlighting the costs and benefits of vertical versus horizontal integration. Your submission, excluding in-text citations and your list of references, may not exceed 350 words.

Start writing here:

Question 2

Many countries have foreign aid programmes that provide financial or other resource assistance during humanitarian crises. The Parliament of Easteros has voted that an annual sum of £30 million should be allocated to global humanitarian crisis responses. The humanitarian crisis in the Democratic Republic of Congo (DRC) will be the focus of donations for the next three years.

To familiarise yourself with global humanitarian aid, use the following resources:

• The Global Humanitarian Assistance Report: Explore the GHA report, which provides an overview of humanitarian assistance in 2018. Pay particular attention to the executive summary and “Chapter 4: Effectiveness, efficiency and quality”.
• Humanitarian crisis in the DRC: Read this brief article for context on the current humanitarian situation in the DRC.

Imagine that you are the minister of international development of Easteros. After the vote in Parliament, you were allocated the £30 million per year to spend on assisting vulnerable groups in the DRC for a three-year period. You have identified three possible strategies:

1. You can set up a new governmental agency focused on humanitarian crises. The mandate of the agency is to use the annual £30 million to identify and work directly with vulnerable groups in the DRC. Where it is impossible to intervene directly, the agency is tasked with identifying partner organisations in the region and then monitoring and enforcing the responsible use of Easteros’ humanitarian assistance.
2. You can pledge £30 million to one of the specialist UN agencies, such as the United Nations Development Programme (UNDP), the World Food Programme, or the United Nations International Children’s Emergency Fund (UNICEF). Easteros will be contractually obligated to provide £30 million annually for the next three years.  The assistance that you provide will be used according to the mandate of the agency that you choose, and you will not be able to directly influence or monitor this spending.
3. You can give the £30 million directly to the government of the DRC each year. You may be able to influence the government to use the financing for certain priorities, but it will be difficult to enforce this agreement at a later stage. You will rely on government officials in the DRC and other third parties, such as journalists, to provide you with information about the use of these funds.

Write an essay detailing the strategy that you would choose in this situation. Your essay should:

• Highlight the principal–agent relationship in the strategy;
• Mention one or two institutional features that you would consider putting in place in order to minimise the agency costs and maximise the benefits of delegation; and
• Apply the theory you learnt in this module, such as shirking, slippage, lock-in, externalities, enforcement, monitoring, and institutional incentives.

As indicated in the rubric at the end of this document, when writing your response, you are required to refer to the course content, the additional resources provided in this assignment, and any other sources consulted as part of your own research. Your submission, excluding in-text citations and your list of references, may not exceed 500 words.

Start writing here:

The following rubric will be used to grade your submission for this activity submission.

	Unsatisfactory	Limited	Accomplished	Exceptional
Adherence to the brief Question 1 The student’s answer does not exceed the word count of 350 words. The student’s answer addresses all elements of the question.	No submission. OR The student’s answer fails to adhere to any of the elements contained in the brief. (0)	The student’s answer adheres to some elements contained in the brief, but most key elements are missing. (1)	The student’s answer adheres to most, but not all, elements in the brief. (2)	The student’s answer adheres to all elements in the brief. (3)
Evidence of understanding Question 1 The student’s answer recommends either vertical or horizontal integration. The benefits and costs of this strategy are highlighted. The student’s answer refers to theory from the module.	No submission. OR The student’s answer does not show evidence of understanding. It does not recommend a course of action, highlight the benefits and costs of this decision, or refer to the theory from the module. (0)	There is some evidence that the student has engaged with the resources. However, the information extracted is at times inaccurate and has not been used to meaningfully answer the question. (1)	The student’s answer offers a reasonable level of engagement with the resources provided. All information is relevant and accurate. This information has been used to recommend either horizontal or vertical integration. (2)	The student’s answer demonstrates a thorough and nuanced understanding of vertical and horizontal integration. The student clearly highlights the benefits and costs of this recommendation. It also draws on theory from the module. (3)
Adherence to the brief Question 2 The student’s answer addresses all elements of the question. The student’s answer includes in-text citations and a reference list where relevant. The student’s answer does not exceed the word count of 500 words.	No submission. OR The student’s answer fails to adhere to any of the elements contained in the brief. (0)	The student’s answer adheres to some elements contained in the brief, but most key elements are missing. (1)	The student’s answer adheres to most, but not all, elements in the brief. (2)	The student’s answer adheres to all elements in the brief. (3)
Evidence of understanding Question 2 The student’s answer outlines which strategy the minister should choose. The student’s answer highlights the potential costs and benefits of this recommendation. The student’s answer refers to theory from this module.	No submission OR The student’s answer does not show evidence of understanding. It does not recommend a course of action, highlight the benefits and costs of this decision, or refer to theory from the module. (0)	There is some evidence that the student has engaged with the resources. However, the information extracted is at times inaccurate and has not been used to meaningfully answer the question. (1)	The student’s answer offers a reasonable level of engagement with the resources provided. All information is relevant and accurate. This information has been used to recommend a course of action to the minister and the student has outlined potential costs and benefits of their recommendation. (2)	The answer shows great evidence of understanding. It clearly recommends the course of action that the minister should choose and highlights the benefits and costs of this recommendation. It also draws on theory from the module. (3)
Evidence of critical thinking Question 2 The student’s answer draws larger conclusions and links between their own research on international aid and situates this within the theory of principal–agent relationships. The student’s answer engages critically with the content to draw meaningful conclusions about designing institutions.	No submission. OR The students answer does not engage with the concepts discussed in the module. It does not draw links between their own research and the academic debates discussed. (0)	The student’s answer shows a limited understanding of some of the concepts discussed in the module. It does not draw links between the case study and the theoretical content. There is little evidence of critical thinking, and the submission leans towards a general description of the principal–agent relationship. (1)	The student’s answer makes good use of theory from the course content, resources, and their own research. It shows command of the relevant conceptual issues with some analytical depth. However, at times, the answer leans towards a description of the principal–agent relationship and other theory, and lacks reflection on the issues covered in the module. (2)	The student’s answer demonstrates a nuanced understanding of the key debates and theories discussed in the module. It draws important links and conclusions between the course content and the case study. It shows critical engagement with the content to make meaningful conclusions about the best strategy to address foreign aid. It also demonstrates superior analytical sophistication, demonstrating a personal and superior marshalling of evidence to support claims. (3)
Coherence and clarity Question 2 The student’s answer is clearly and logically structured, and is written in a comprehensible way.	No submission. OR The student’s answer is incoherent or lacks clarity. It is not logically structured, or it is incomprehensible. (0)	The student’s answer demonstrates limited coherence and clarity. The writing is comprehensible, but lacks logical structure. (1)	The student’s answer is written clearly and coherently. The writing is logically structured, but there is room for improvement. (2)	The student’s answer is clearly structured and written with great clarity and coherence. (3)

Total: 18 marks