Simon Fraser University
Engaging the World

Course Outlines

Fall 2022 - ECON 826 G100

Applied Contract Theory (4)

Class Number: 4839

Delivery Method: In Person

Overview

  • Course Times + Location:

    Sep 7 – Dec 6, 2022: Fri, 10:30 a.m.–1:20 p.m.
    Burnaby

Description

CALENDAR DESCRIPTION:

This course examines topics specific to the theory of the firm. Classes will focus on theories of transaction cost, principal-agency, and the theory of contracts. Particular attention will be given to the strategic interaction of the agents. Equivalent Courses: ECON913

COURSE DETAILS:

This course introduces the basic concepts that may help to understand the internal organization of firms. Agency theory considers situations where an entrepreneur (“principal”) does not operate the firm on her own but hires workers and managers (“agents’’) to perform specific tasks. The question is then how the principal should structure the contractual relationship with her agents, in particular, to elicit private information and to induce agents to exert appropriate effort. Subsequently, we discuss  `incomplete contracting’ models as a way to develop meaningful theories of firm ownership, and explore optimal governance structures for a variety of specific economic examples.

 

A sketchy overview of topics covered is as follows.

 

  1. Agency Theory: Incomplete Information and Moral Hazard
  2. Transaction Costs and Property-Rights Theory
  3. The Theory of the Firm and Incomplete Contracting
  4. Some Ideas on a Foundation of Incomplete Contracts

 

Some more advanced game-theoretical tools and concepts will be developed in class as needed. Students are expected to have a solid knowledge of basic calculus.

 

Grading

  • Assignments 30%
  • Term Paper 30%
  • Final Exam 40%

Materials

REQUIRED READING:

No single textbook covers the entirety of topics. We will partly rely on

 

Patrick Bolton and Mathias Dewatripont: Contract Theory, MIT, 2005.

Oliver Hart: Firms, Contracts and Financial Structure, Oxford University Press, 1995.

The relevant parts of these books and some original papers to be discussed in class will be placed on reserve.


REQUIRED READING NOTES:

Your personalized Course Material list, including digital and physical textbooks, are available through the SFU Bookstore website by simply entering your Computing ID at: shop.sfu.ca/course-materials/my-personalized-course-materials.

Graduate Studies Notes:

Important dates and deadlines for graduate students are found here: http://www.sfu.ca/dean-gradstudies/current/important_dates/guidelines.html. The deadline to drop a course with a 100% refund is the end of week 2. The deadline to drop with no notation on your transcript is the end of week 3.

Registrar Notes:

ACADEMIC INTEGRITY: YOUR WORK, YOUR SUCCESS

SFU’s Academic Integrity website http://www.sfu.ca/students/academicintegrity.html is filled with information on what is meant by academic dishonesty, where you can find resources to help with your studies and the consequences of cheating. Check out the site for more information and videos that help explain the issues in plain English.

Each student is responsible for his or her conduct as it affects the university community. Academic dishonesty, in whatever form, is ultimately destructive of the values of the university. Furthermore, it is unfair and discouraging to the majority of students who pursue their studies honestly. Scholarly integrity is required of all members of the university. http://www.sfu.ca/policies/gazette/student/s10-01.html