Spring 2022 - ECON 826 G100

Applied Contract Theory (4)

Class Number: 4036

Delivery Method: In Person


  • Course Times + Location:

    Jan 10 – Apr 11, 2022: Mon, 10:30 a.m.–12:20 p.m.

    Jan 10 – Apr 11, 2022: Thu, 10:30–11:20 a.m.



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



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.

An 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.


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



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

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

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

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:


SFU’s Academic Integrity web site 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


Teaching at SFU in spring 2022 will involve primarily in-person instruction, with safety plans in place.  Some courses will still be offered through remote methods, and if so, this will be clearly identified in the schedule of classes.  You will also know at enrollment whether remote course components will be “live” (synchronous) or at your own pace (asynchronous).

Enrolling in a course acknowledges that you are able to attend in whatever format is required.  You should not enroll in a course that is in-person if you are not able to return to campus, and should be aware that remote study may entail different modes of learning, interaction with your instructor, and ways of getting feedback on your work than may be the case for in-person classes.

Students with hidden or visible disabilities who may need class or exam accommodations, including in the context of remote learning, are advised to register with the SFU Centre for Accessible Learning (caladmin@sfu.ca or 778-782-3112) as early as possible in order to prepare for the spring 2022 term.