This is a course in Contract theory providing both introductory and advanced material about incentives with asymmetric information. The course will cover both hidden information problem (adverse selection) and hidden actions problems (moral hazard). The perspective is that of optimal contract design in presence of conflicting interests between parties (the contract designer, i.e. the principal, and the delegated agent).
Introduction to the economics of information.
From The economist (2016) Seminal economic ideas: secrets and agents
Stiglitz (2000, QJE) THE CONTRIBUTIONS OF THE ECONOMICS OF INFORMATION TO TWENTIETH CENTURY ECONOMICS
Markets under adverse selection (the market for lemons). Signaling and Screening. Refinements and semipooling equilibria.
Death spiral Cutler and Reber QJE 1998
The theory of optimal risk-sharing.
The principal-agent problem. Introduction. Contracts under moral hazard. Applications.
Adverse selection in the principal-agent model and the Revelation Principle. A continuum of types. Type-dependent outside-options and countervailing incentives
Multiple dimensions of adverse selection in the principal-agent model.
Barigozzi Burani (2016)
Competition between principals: agency models with adverse selection.
Rochet Stole (2002)
Barigozzi Burani (2019)
The market for lemons, signaling and screening: A.Mas-Colell, M.Whinston and J. Green, Microeconomic Theory, Oxford University Press, 1995, chap 13.
Moral hazard: Milgrom-Roberts, Economics Organization and Management, McGraw Hill, 1992, chap 7.
The Revelation Principle: Laffont, J.J. and D. Martimort, The Theory of Incentives: The Principal-Agent Model, Princeton University Press, 2002, chap 2 and few paragraphs in other chapters (specified in slides).
Adverse selection and moral-hazard in contracts theory: Bolton P. and M. Dewatripont, Contract Theory, The MIT Press, 2005, chaps 2 (sections 2.1 and 2.3.3) and 4 (sections 4.1 and 4.2).
Clarke-Groves: Varian, H., Microeconomic Analysis, III ed., Norton, 1992, a paragraph in chap 23.
Assessment method
A (solo) class presentation of 20 minutes (and a written exam for PhD students only).
List of papers for class presentations
The presentation should contain 13/15 slides and should be organized as follows:
Description of the objective of the paper and motivation for the analysis
What type of theoretical model is it? (ex: signaling, screening, P-A with either moral-hazard, adverse selection, or both...)
Link to the course's content and short description of the related literature
Detailed presentation of the model set up.
Description of the contribution of the paper (as for the problem analyzed and its solution).
Description of results and main message of the paper (with intuitions, if possible)
Francesca Barigozzi: see here