This popular text, revised and updated throughout for the second edition, serves as a concise and rigorous introduction to the theory of contracts for graduate students and professional economists. The book presents the main models of the theory of contracts, particularly the basic models of adverse selection, signaling, and moral hazard.
It emphasizes the methods used to analyze the models, but also includes brief introductions to many of the applications in different fields of economics. Adverse selection theory has been pioneered by Roger Myerson , Eric Maskin , and others in the s. Adverse selection theory has been expanded in several directions, e. Contract theory also utilizes the notion of a complete contract , which is thought of as a contract that specifies the legal consequences of every possible state of the world.
More recent developments known as the theory of incomplete contracts , pioneered by Oliver Hart and his coauthors, study the incentive effects of parties' inability to write complete contingent contracts, e. A leading application of the incomplete contracting paradigm is the Grossman-Hart-Moore property rights approach to the theory of the firm see Hart, Because it would be impossibly complex and costly for the parties to an agreement to make their contract complete,  the law provides default rules which fill in the gaps in the actual agreement of the parties.
During the last 20 years, much effort has gone into the analysis of dynamic contracts. Important early contributors to this literature include, among others, Edward J. Green , Stephen Spear, and Sanjay Srivastava. From Wikipedia, the free encyclopedia. This article is about the economic analysis of contracts.
The Economics of Contracts: A Primer by Bernard Salanie
For legal definitions and contract law, see Contract. For a less technical discussion of a highly related topic, see Principal-agent problem.
Agency cost Allocative efficiency Complete contract Incomplete contracts Clawback Contract Contract awarding Default rule Mechanism design New institutional economics Perverse incentive. Bell Journal of Economics. International Economic Review.
Journal of Economic Literature. Games and Economic Behavior. A theory of incentives in procurement and regulation. MIT Press. An experimental test of adverse selection theory". In Dewatripont; et al.
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