AØKA08055U Contract Theory
MSc programme in Economics – elective course
The PhD Programme in Economics at the Department of Economics - elective course with resarch module (PhD students must contact the study administration and the lecturer in order to write the research assignment)
MSc programme in mathematics-economics
The course provides an introduction to contract theory. Contract theory examines the characteristics of optimal contracts when one party has certain relevant knowledge that the other party does not have.
The course consists of two parts. In the first part, some of the basic ideas in contract theory are presented. We will, in particular, look at optimal contracts when one party has hidden information (adverse selection) or can take a hidden action (moral hazard). In the second part of the course we apply the insights obtained to a number of specific economic questions, studying some original journal articles.
In the first part we will study selected sections of chapters 2-5 of the textbook by Laffont and Martimort. Chapter 2 explains the basic idea and insights of adverse selection. Chapter 3 studies some important extensions of the basic adverse selection model: for example, environments where the agent may be of more than two “types”, which may lead to “bunching” (i.e., several types being offered the same contract).
Chapter 4 explains the basic idea and insights of moral hazard, using a very stylized model with two effort levels and two possible outcomes. Chapter 5 extends this model in some interesting ways, for example: environments with a continuous effort variable, leading to a discussion of the so-called first-order approach.
The journal articles that we will study concern various topics, including managerial incentives and product market competition; regulation; and incentives for marketing agents to “missell”.
The primary aim of the course is to introduce students to
central results and insights in contract theory. An additional aim
is to familiarize students with some selected examples of how
contract theory can be used to study economic questions. A broader
aim is that students who take the course will, by working
extensively with theoretical models, acquire analytical skills that
are transferable to other kinds of intellectual problems.
After having successfully completed the course, the students will
be able to formulate and solve contract theory models. The students
will also be able to read professional journal articles that apply
contract theory and to use this broad analytical approach when
analyzing and thinking about questions where incentives play a
role.
In order to pass the course, the student must demonstrate familiarity with and understanding of the approach of contract theory. Moreover, the student must show ability to solve and work with models used in contract theory and ability to understand the logic behind the results. At the end of the course, the very good should be able to demonstrate full or almost full capability of using and understanding the techniques of analysis taught in the course.
To sum up, after having completed the course the students should:
Knowledge:
- Understand the main ideas and results in the contract theory literature.
- Be familiar with some important analytical techniques used in contract theory.
Skills:
- Be able to formulate and solve contract theory models.
- Be able to read professional journal articles that apply contract theory.
Competencies:
- Be able to use the broad analytical approach of contract theory when analyzing and thinking about questions and intellectual problems where incentives play a role.
Note: Details of the syllabus may change.
Textbook (selected parts)
Laffont, Jean-Jacques, and David Martimort (2002), The Theory of Incentives: The Principal-Agent Model, Princeton University Press.
Preliminary plan:
Sections 2.1-2.6, 2.9, and 2.10 (except 2.10.2 and 2.10.3).
Sections 3.1, 3.3.1 (including introduction to 3.3) and 3.7.
Introduction to Ch. 4 (pages 145-148), Sections 4.1-4.4 up until and including Proposition 4.5 on page 161.
Sections 4.8.2 (on sharecropping) and 4.8.5 (on insurance contracts).
Section 4.5 (pages 163-167) – however, the formal model with a risk-averse agent is excluded although the discussion on page 167 is included.
Section 5.1.2. Also the discussion related to the first-order approach in Sections 5.1.1 and 5.1.3 (hence not the formal models).
Sections 5.2.1 and 5.2.2.
Preliminary list of journal articles/book chapters (typically only selected pages):
Prendergast, Canice. “The Provision of Incentives in Firms”. Journal of Economic Literature, 37(1), 1999.
Vickers, John. “Concepts of competition” Oxford Economic Papers, 47(1), 1995.
Inderst, Roman, and Marco Ottaviani. “Misselling through Agents” American Economic Review, 99(3), 2009.
Laffont, Jean-Jacques, and Jean Tirole, A Theory of Incentives in Procurement and Regulation, MIT Press, 1993 (parts of Chapter 1).
- Schmidt, Klaus M. “Managerial Incentives and Product Market Competition”. Review of Economic Studies, 64(2), 1997.
3 hours lectures every week from week 36 to 50 (except week 42).
The overall schema for the Master can be seen at https://intranet.ku.dk/economics_ma/courses/CourseCatalogue-E18/Courseschema/Pages/default.aspx
Timetable and venue:
To see the time and location of lectures please press the link under "Se skema" (See schedule) at the right side of this page. E means Autumn.
You can find the similar information partly in English at
https://skema.ku.dk/ku1819/uk/module.htm
-Select Department: “2200-Økonomisk Institut” (and wait for respond)
-Select Module:: “2200-E18; [Name of course]””
-Select Report Type: “List – Weekdays”
-Select Period: “Efterår/Autumn – Weeks 31-5”
Press: “ View Timetable”
- Category
- Hours
- Exam
- 3
- Lectures
- 42
- Preparation
- 161
- Total
- 206
For enrolled students. More information about registration, schedule, rules etc. can be found at the intranet for Master students (UK ) and Master students (DK).
Foreign students not enrolled please find more information at Study Economics.
For enkelfagsstuderende sker tilmelding via Åbent Universitet og Merit.
Læs om uddannelsen og studieordningen på KA uddannelsen i økonomi.
- Credit
- 7,5 ECTS
- Type of assessment
- Written examination, 3 hours under invigilationIndividual exam at the computers of Copenhagen University.
The exam assignment is given in English and must be answered in English.
____ - Exam registration requirements
None
____
- Aid
- Without aids
- Marking scale
- 7-point grading scale
- Censorship form
- No external censorship
____
- Exam period
The exam takes place at the exam venues of the university:
10 January 2019
The exact time and room of the exam will be informed in the Self-Service at KUnet
Exam information:
For enrolled students more information about examination, rules, exam schedule etc. is available at the intranet for Master students (UK) and Master students (DK).
____
- Re-exam
The exam takes place at the exam venues of the university:
15 February 2019
The exact time and room of the exam will be informed in the Self-Service at KUnet
Reexam information:
If only a few students have registered for the written re-exam, the reexam might change to an oral exam including the date, time and place for the exam, which will be informed by the Examination Office.
More information is available at Master students (UK),and Master students (DK).
Criteria for exam assesment
Students are assessed on the extent to which they master the learning outcome for the course.
To receive the top grade, the student must with no or only a few minor weaknesses be able to demonstrate an excellent performance displaying a high level of command of all aspects of the relevant material and can make use of the knowledge, skills and competencies listed in the learning outcomes.
Course information
- Language
- English
- Course code
- AØKA08055U
- Credit
- 7,5 ECTS
- Level
- Full Degree MasterPh.D.
- Duration
- 1 semester
- Placement
- Autumn
- Schedule
- and venue:
Go to "Remarks".
Exam and re-sits: Go to "Exam". - Continuing and further education
- Price
Information about admission and tuition fee: Master and Exchange Programme, credit students and guest students (Open University)
- Study board
- Department of Economics, Study Council
Contracting department
- Department of Economics
Contracting faculty
- Faculty of Social Sciences
Course Coordinators
- Johan Lagerlöf (14-757a736c7939776c72707d777a714b706e7a79397680396f76)
Lecturers
see 'Course Coordinators'