《THE ECONOMICS OF CONTRACTS A PRIMER》

1Introduction1

1.1 The Great Families of Models3

1.2 The Principal-Agent Model4

1.3 Overview of the Book6

References8

2Adverse Selection: General Theory11

2.1 Mechanism Design13

2.1.1 General Mechanisms15

2.1.2 Application to Adverse Selection Models16

2.2 A Discrete Model of Price Discrimination18

2.2.1 The Consumer18

2.2.2 The Seller19

2.2.3 The First-Best: Perfect Discrimination19

2.2.4 Imperfect Information21

2.3 The Standard Model26

2.3.1 Analysis of the Incentive Constraints28

2.3.2 Solving the Model32

Exercises39

References40

3 Adverse Selection: Examples and Extensions41

3.1 Examples of Applications41

3.1.1 Regulating a Firm41

3.1.2 Optimal Taxation43

3.1.3 The Insurer as a Monopolist47

3.1.4 Implicit Contracts52

3.2 Extensions59

3.2.1 Competition in Contracts59

3.2.2 The Theory of Auctions65

3.2.3 Risk-Averse Agents71

3.2.4 Multidimensional Characteristics73

3.2.5 Robustness and Observation Errors74

3.2.6 Bilateral Private Information75

3.2.7 Countervailing Incentives78

Exercises79

References81

4 Signaling Models85

4.1 The Market for Second-hand Cars86

4.2 Costly Signals87

4.2.1 Separating Equilibria90

4.2.2 Pooling Equilibria90

4.2.3 The Selection of an Equilibrium92

4.3 Costless Signals95

4.3.1 A Simple Example95

4.3.2 The General Model97

4.4 Other Examples101

4.5 The Informed Principal103

Exercises104

References105

5Moral Hazard107

5.1 A Simple Example110

5.2 The Standard Model112

5.2.1 The Agent's Program113

5.2.2 The Principal's Program114

5.2.3 Properties of the Optimal Contract117

5.3 Extensions123

5.3.1 Informativeness and Second-Best Loss123

5.3.2 A Continuum of Actions124

5.3.3 An Infinity of Outcomes125

5.3.4 The Multisignal Case126

5.3.5 Models with Several Agents127

5.3.6 The Robustness of Contracts128

5.3.7 The Multitask Model130

5.4 Examples of Applications134

5.4.1 Insurance134

5.4.2 Wage Determination136

Exercises140

References141

6The Dynamics of Complete Contracts143

6.1 Commitment and Renegotiation144

6.2 Strategic Commitment146

6.3 What Are Complete Contracts?150

6.4 Adverse Selection151

6.4.1 Full Commitment152

6.4.2 Long-Term Commitment154

6.4.3 No Commitment158

6.4.4 Short-Term Commitment159

6.4.5 Conclusion160

6.5 Moral Hazard160

6.5.1 Renegotiation after Effort161

6.5.2 Convergence to the First-Best163

6.5.3 Finitely Repeated Moral Hazard165

References172

7Incomplete Contracts175

7.1 Observable but Nonverifiable Effort177

7.2 Property and Residual Control Rights179

7.3 Contract Incompleteness and Underinvestment184

7.4 Concluding Remarks187

References188

8Some Empirical Work191

8.1 Adverse Selection Models192

8.1.1 The Standard Model192

8.1.2 Models of Auctions195

8.2 Moral Hazard Models199

8.2.1 Using Dynamics200

8.2.2 Exploiting Insurance Data201

8.3 Conclusion202

References203

Appendix: Some Noncooperative Game Theory205

A.1 Games of Perfect Information206

A.1.1 Nash Equilibrium206

A.1.2 Subgame-Perfect Equilibrium206

A.2 Games of Incomplete Information208

A.2.1 Bayesian Equilibrium208

A.2.2 Perfect Bayesian Equilibrium209

A.2.3 Refinements of Perfect Bayesian Equilibrium211

References214

Index215