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3 answers
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What is the definition of "First Best", "Second Best", etc. in contract theory?

What is the definition of "First Best", "Second Best", etc. in contract theory? Especially, what is the difference between "First Best" in contract theory and "ex-post efficient" in mechanism design?
Joe Li's user avatar
  • 243
10 votes
1 answer
75 views

Lab experiments for a course in standard contract theory

I am teaching a course in contract theory based on the textbooks by Bolton/Dewatripont and Laffont/Martimort. I would like to briefly present some lab experiments to illustrate basic insights of ...
dan84's user avatar
  • 101
6 votes
2 answers
165 views

Integrate a sufficient statistic

I have a few mathematical problems with the paper Moral hazard in teams 1982. How do I get from (2) to (1) by integrating and why is the qualification necessary "for almost all" $$g(y,a)=h_i(...
contracttheory's user avatar
5 votes
1 answer
123 views

Payoff from an option contract

In period 1 the consumer of type $\theta$ selects an option contract consisting of an up-front fee, $B>0$, and exercise price, $\bar{R}$. The consumer pays $B$ at the end of the first period. In ...
Charles's user avatar
  • 301
5 votes
1 answer
192 views

General mathematical model of incomplete contracts?

I have read various articles about incomplete contracts, like Hart's papers and Milgrom's papers. But I have not found a paper that defines mathematically, in the most general way possible, what an ...
user8301's user avatar
  • 133
3 votes
2 answers
55 views

Signalling in a moral hazard contract with informed principals (that know their own type before contracting)

I was studying Laffont & Martimort textbook for a paper, but their section on moral hazard contract with informed principals assumes that the principal only knows his own type after contracting. ...
Iriki's user avatar
  • 61
3 votes
3 answers
121 views

What kind of contractual problem is this?

Oliver Hart, a Nobel Price winning economist, made the following case against privately founded prisons in an interview from 2017: “There are some things that are difficult to specify [in a contract ...
riker123's user avatar
3 votes
1 answer
22 views

how can I find the original work on the bases of which 2016 nobel in economics was given?

I have been google and googling and asking around and I can not find the work(s) on the basis of which the nobel in economics was given yesterday. I really wanted to read them. does anyone know how to ...
user avatar
3 votes
1 answer
528 views

Relation between incomplete contracting and the principal agent problem?

I have read about incomplete contracts in the context of vertical integration of firms, in which the two contracting parties are relatively "symmetric" (we cannot say that one is the agent and the ...
user8301's user avatar
  • 133
3 votes
0 answers
33 views

Screening models with multiple goods and interacting costs

I'm looking for a reference in the literature on monopolistic screening/mechanism design, where there are multiple allocative variables and these interact in the agent's utility function. For example, ...
econ1324's user avatar
2 votes
1 answer
170 views

Principal-Agent Problem with Two Agents

Consider the following principal-agent problem. You are a manager in charge of two workers, indexed with $i=1,2$. Each worker is asked to perform a particular task, and each can either work hard at ...
rudgns55's user avatar
  • 123
2 votes
1 answer
150 views

Spence-Mirrlees Single Crossing Condition

This question stems from section 2.3.3.1, pages 76-78 of Bolton and Dewatripont "Contract Theory". Suppose we have a single buyer and supplier. Buyers types are drawn from a continuum $\...
Joseph Basford's user avatar
2 votes
1 answer
67 views

Where can I learn random matching models?

The title says all. I need papers or textbooks that explain in detail (step by step, maybe showing some canonical results) how I can model random matching games. Does anyone have a reference? Thank ...
Iriki's user avatar
  • 61
2 votes
1 answer
609 views

Adding a non-binding constraint to the objective function

I am dealing with a constrained optimization problem found in Tirole's Theory of corporate finance. My question is not related to the details of this model, but just to provide some context, we are ...
jlol's user avatar
  • 55
2 votes
1 answer
203 views

Which mathematics are required for fully understanding the theories of the firm?

When I say "theories of the firm", I'm referring, in particular, to the theories exposed in the next works: 1) Transaction Cost Economics exposed in "Transaction Cost Economics" by ...
David Fernando Jiménez's user avatar
2 votes
1 answer
52 views

What is the meaning of "labor input" in the context of incentive theories?

In the article "Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design" (Holmström and Milgrom, 1991) it is said that two identical agents ($i=1,2$) devote ...
David Fernando Jiménez's user avatar
2 votes
0 answers
148 views

help with nested integrals in common agency public goods paper

I'm trying to derive the example function used in a paper I am reading and am stuck. Please help. Below is the equation. For now, all I am requesting is someone to help me solve for p. More details ...
KatLeigh11's user avatar
2 votes
0 answers
14 views

Why does a buyer-employment contract dominate a spot contract in this example (Bolton & Dewatripont 11.1.2.5, p497)

I'm working through Bolton and Dewatripont, Section 11.1.2, and have some questions about material in 11.2.5 on the bottom of page 497. I've tried to abbreviate the setup below, followed by my ...
akm's user avatar
  • 131
2 votes
0 answers
44 views

Strange screening game were FS contracts equals optimal contracts

Consider the setting where a principal hires an agent to do a project. Payoff from project is $\pi = \beta e$, where $\beta \in \{1,2\}$ is the degree of the agent's talent and $e \in [0, +\infty]$ is ...
Screeningdude's user avatar
1 vote
1 answer
50 views

Contract theory: Incentive contracts (when agents have multiple tasks) models by G. Baker and Holmstrom & Milgrom

So my question is the following: In both Baker's (2002) and H & M (1991) models we have a problem that a principal is trying to design a stimulating contract in such way that the agent will ...
Ilia Khrenkov's user avatar
1 vote
1 answer
86 views

Are there studies that empirically validate results in contract theory? [closed]

I have started learning contract theory of late, and I find some of the assumptions and findings of the theory are too technical. Are there empirical studies that have validated concepts in contract ...
Bravo's user avatar
  • 1,699
1 vote
2 answers
673 views

Reservation utility

I am self-studying contract theory using Bolton and Dewatripont (2005). It is meant for grad students, which might be why I am having a difficult time understanding basic terminology. Here is the ...
user11767's user avatar
  • 661
1 vote
0 answers
53 views

Equation for pure wage contracts in the land market

I am reading "Development Economics" by Debraj Ray. I need to understand the different kinds of contracts in the land market. Chapter 12.3.1 explains the contract forms. The general equation ...
robertspierre's user avatar
1 vote
0 answers
30 views

The most used probability distributions in moral hazard models?

I'm engaged in making a variation of the canonical moral hazard model, but I need some examples of probability distributions to make some simulations and graphs. What are the probability distributions ...
Iriki's user avatar
  • 61
1 vote
0 answers
112 views

A manifold of agents?

In contract theory and mechanism design, if the agents have one-dimensional characteristics, then they are usually considered as a contiuum on $\mathbb R$; if they have n-dimensional type, then they ...
High GPA's user avatar
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1 vote
0 answers
71 views

Dynamic contract theory: Demarzo, Fishman(2007) optimal long term financial contracting

I am reading Demarzo, Fishman(RFS,2007). Any suggestion will be appreciated. My questions are the following: (a) \begin{equation*} b_T^e(a) = \left\{\begin{array}{lll} -e^{(\gamma-r)(...
E.Green's user avatar
  • 11
1 vote
0 answers
33 views

Foreseeability vs negligence

Why is it the case that contractual liability is usually defined by basis of foreseeability rather than negligence (like in tort law)? I am looking a good explanation for this from economics. I ...
user3314's user avatar
0 votes
1 answer
152 views

Smart contracts in Dollars

In last years I have read a lot about "Smart contracts". But I cannot understand why we need bitcoin for this? The old-fashioned US Dollar are not used in Smart Contracts?
sparkle's user avatar
  • 177
0 votes
1 answer
180 views

Expected Utility and Jensen's Inequality

Consider two random variables (costs and valuations) distributed $v\backsim G(.)$ and $c \backsim F(.)$ with pdfs $g(.)$ and $f(.)$. Let the supports of $c$ and $v$ be $[x,y]$. Let $x<a=E(v)<b&...
carlogambino's user avatar
0 votes
0 answers
23 views

Equilibrium Non-Existence in Moral Hazard with Bilateral Risk Neutrality

Suppose we have one agent and one principal. The agent picks effort level $e\in \{0,1\}$ which is not contractible. The agent is risk neutral with ex-post utility $w-ce$ where $c>0$ and $w$ is the ...
Joseph Basford's user avatar
0 votes
0 answers
19 views

Moral Hazard in Teams. Deriving Nash Equilibrium with bonus paying sheme

I have a few mathematical problems with the paper Moral hazard in teams, by Bengt Hölmstrom 1982. Theorem 4 Denote the conditional distribution of $x$, given the action vector $a$, by $F(x, a)$ and ...
contracttheory's user avatar
0 votes
0 answers
34 views

Value of information in the Moral hazard in teams context

I have a few mathematical problems with the paper Moral hazard in teams 1982 by Bengt Holmstrom, especially in chapter 3. (sufficient statistic) page 330 following The welfare problem can be stated as:...
contracttheory's user avatar
0 votes
0 answers
80 views

Incentive compatibility constraint with continuous types

I have a Principal agent problem where principal knows about the information about the agent which is critical to both the parties. Principal is a business tycoon who has an inside information about ...
Elina Gilbert's user avatar
0 votes
0 answers
244 views

Principal agent question

Principal is interested in buying lake. The revenues of operating the lake as a camping site are determined by the weather (a random parameter $w$ distributed uniformly on $[0, 1]$) and by the ...
124qqq's user avatar
  • 27