Contract
Theory and Mechanism Design
Course
website:
http://www.kellogg.northwestern.edu/faculty/baliga/ftp/Papers/topics.htm
Format
For the first 5-6 weeks I will lecture on the following topics: moral
hazard, moral hard in teams, dynamic agency, renegotiation in agency, adverse
selection, renegotiation and adverse selection, and implementation. For the final few weeks, students split into
teams will present papers from the list below.
Grade
The final grade will be determined by (1) Problem Sets (2) quality of
presentation and (3) referee reports (equal weight):
(1) I will
give out several problem sets (3-4).
(2) Teams can
decide who should present what paper.
You should present using overheads and distribute copies to the class.
(3) Except in
the week you are presenting, a referee report on the papers to be presented
that week is due at the start of class.
The referee report should include a summary of the paper, its relation
to the literature, its originality and a critical discussion of it
contribution.
I will lecture out of some combination of Salanie’s The Economics of
Contracts (MIT Press) and Lars Stole’s Lectures on Contracts and Organization
(http://gsblas.uchicago.edu/Lars_Stole.html. Download, order these things if you want to
though you do not need to if you pay attention in class. Most of the papers for the topics part of the
course have links to the paper. You will
need to download these.
List
of Topics
Foundations of Incomplete Contracts
Che, Y. and D. Hausch (1999), “Cooperative Investments and the Value of Contracting,”
American Economic Review, 125-147.
Andreas Roider, “Delegation of Authority as an Optimal (In)Complete Contract,”
mimeo,
Andreas Roider, “Asset Ownership and Contractibility of
Interaction,” forthcoming, RAND
Journal of Economics.
Oliver Hart and John Moore, “A Dynamic Model of Debt,” Quarterly Journal of Economics, Issue 1,
1998.
Relational Contracts
Che, Y-K. and S. Woo (2001), “Optimal Incentives for Teams,” June, 525-541
Levin, J. (2003), "Relational
Incentive Contracts," forthcoming, American Economic Review.
(Also an appendix.)
MacLeod , B. and J. Malcolmson (1989), “Implicit Contracts, Incentive Compatibility and Involuntary Unemployment, Econometrica, 447-480
Baker, G., R. Gibbons, and K. J. Murphy (1994), "Subjective Performance Measures in Optimal Incentive Contracts," Quarterly Journal of Economics, 109(4), 1125-56.
Baker, G., R. Gibbons, and K. J. Murphy
(2002), "Relational Contracts and the Theory of
the Firm," Quarterly Journal of Economics, 117(1), 39-84.
Baker, G., R. Gibbons, and K. J. Murphy
(2002), "Bringing the Market Inside the Firm,"
forthcoming, American Economic Review.
Baker, G. and T. Hubbard (2003), “Make vs. Buy in Trucking: Asset Ownership, Job Design and Information,” American Economic Review, June, 551-572.
Mechanism Design
Bernheim, Douglas and Michael Whinston
(1998), “Incomplete Contracts and Strategic Ambiguity,”
American Economic Review, 902-32.
Bull, J. and J. Watson (2002), "Evidence Disclosure and Verifiability," UCSD, mimeo.
Brennan, J. and J. Watson (2003), “The Renegotiation-Proofness Principle and Costly
Renegotiation,” UCSD, mimeo.
Watson, J. (2003), “Contract,
Mechanism Design and Technological Detail,” mimeo, UCSD
Political Applications
Aghion, P. and P. Bolton (2002), "Incomplete Social Contracts," Princeton, mimeo.
L. Anderlini, L. Felli and A. Postlewaite, (2003): "Courts of Law and Unforeseen Contingencies," LSE, mimeo.
Dewatripont, M. and J. Tirole (1999), "Advocates," Journal of Political Economy , 107(1): 1-39.
Authority
Aghion, P., M. Dewatripont, and P. Rey
(2002a), "On Partial
Contracting," European Economic Review, 46, 745-753;
with
___________ (2002b), "Transferable
control," forthcoming, Journal
of the European Economic Association.
Dessein, W. (2002): “Authority
and Communication in Organizations,” Review
of Economic Studies.
Multi-Agent Contracts
Rayo, Luis (2002), "Relational Team Incentives and Ownership," Chicago, mimeo.
Tirole, J. (1996), "A Theory of Collective Reputations (with Applications to the Persistence of Corruption and to Firm Quality)," Review of Economic Studies, 63(1), 1-22.