Fall 2022 - ECON 826 G100
Applied Contract Theory (4)
Class Number: 4839
Delivery Method: In Person
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.
A sketchy overview of topics covered is as follows.
- Agency Theory: Incomplete Information and Moral Hazard
- Transaction Costs and Property-Rights Theory
- The Theory of the Firm and Incomplete Contracting
- 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%
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:
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Graduate Studies Notes:
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