contract theory

Theory of Contract Keio Syllabus - incentive Issues and Contract Theory - expected utility theory - moral hazard : Basic Theory

• Moral Hazard: Expansion into multi-agent and team issues
• Moral hazard: application to incentive systems and financial contracts within firms
  • adverse selection : Basic theory
• Adverse selection: signalling.
• Adverse selection: screening.
• Ownership and incomplete contract: basic theory
• Ownership and Incomplete Contracts: Application to Corporate Integration, Intra-firm Organization

reference book

• Macmillan, Game Theory of Management Strategy - Strategic Analysis of Negotiations, Contracts and Bidding, Yuhikaku.
• Milgrom, Roberts, “Economics of Organization,” NTT Publishing Co.
• Roberts, “Organizational Design of Modern Corporations The Economics of Strategic Management,” NTT Publishing Co.
• Noriyuki Yanagawa, “Economics of Contracts and Organizations,” Toyo Keizai Inc.
• Shinsuke Kobe, “Introductory Game Theory and the Economics of Information,” Nippon Hyoronsha, Inc.
• H. Ito and H. Osano (Eds.), Economics of Incentive Design - An Applied Analysis of Contract Theory, Keiso Shobo.
• Ito, Hidefumi, “Economic Theory of Contracts”, Yuhikaku +.
• Salanier, Economics of Contracts, Keiso Shobo.
• Bolton and Dewatripont ‘Contract Theory’ MIT Press+

Keywords. - (complete) contract and incomplete contract - (complete) contract - Controlling the value of a hidden variable by contract for an observable variable - Incentive Design - information asymmetry - Before transaction: adverse selection. - Many: Lemon Market. - The party with the information acts first: signalling. - The side without information acts first: screening. - post-trade - moral hazard - Principal-agent model - Irreconcilable trade-offs - Efficiency of risk sharing → fixed fee - Effort incentive →Reward for performance - incomplete contract - Post-contractual negotiations after the fact change the effect of the contract (the nature of the transaction). - We want to draw out efforts by designing a well-structured authority structure. - Transaction costs - ownership - decision-making authority - both - Economics of Organization - Organizational Boundaries

reference book (work) - Firms Contracts Financial Structure

• Limitations of Market Theory

  • Price taker: no one can move the price
  • symmetrical information

• information asymmetry

• self-selection constraint

• adverse selection = reverse selection

• reverse selection

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