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The Economics of Contracts : A Primer, 2nd Edition - Bernard Salanie

The Economics of Contracts

A Primer, 2nd Edition

Hardcover Published: 15th March 2005
ISBN: 9780262195256
Number Of Pages: 256
For Ages: 18+ years old

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The theory of contracts grew out of the failure of the general equilibrium model to account for the strategic interactions among agents that arise from informational asymmetries. 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. The goal is to give readers the tools to understand the basic models and create their own. For the second edition, major changes have been made to chapter 3, on examples and extensions for the adverse selection model, which now includes more thorough discussions of multiprincipals, collusion, and multidimensional adverse selection, and to chapter 5, on moral hazard, with the limited liability model, career concerns, and common agency added to its topics. Two chapters have been completely rewritten: chapter 7, on the theory of incomplete contracts, and chapter 8, on the empirical literature in the theory of contracts. An appendix presents concepts of noncooperative game theory to supplement chapters 4 and 6. Exercises follow chapters 2 through 5.

Industry Reviews

"Salanie provides a broad overview of the economics of contracts. Concision and clarity make the book an elegant introduction to the subject for newcomers. But it is also a useful reference for experienced students and researchers."--Roger Guesnerie, College de France "Salanie has written an elegant book, concise in its explanations and tightly focused on the most useful models and results of contract theory. His experience in both theory building and theory testing are plain to see in his sure-handed choices, which separate the chaff from the wheat in this huge and growing body of theory. I recommend this book highly to students and newcomers to the economic theory of contracts."--Paul Milgrom, Professor of Economics, Stanford University "The first edition of Salanie's book provided an insightful introduction to the modern economics of incentives and contracts. This second edition keeps up with recent advances while maintaining the emphasis on key ideas and intuitions. A great read."--Patrick Rey, IDEI, University of Toulouse

Foreword to the Second Editionp. ix
Foreword to the First Editionp. xi
Introductionp. 1
The Great Families of Modelsp. 3
The Principal-Agent Modelp. 5
Overview of the Bookp. 6
Referencesp. 8
Adverse Selection: General Theoryp. 11
Mechanism Designp. 13
General Mechanismsp. 15
Application to Adverse Selection Modelsp. 16
A Discrete Model of Price Discriminationp. 18
The Consumerp. 19
The Sellerp. 19
The First-Best: Perfect Discriminationp. 20
Imperfect Informationp. 21
The Standard Modelp. 27
Analysis of the Incentive Constraintsp. 29
Solving the Modelp. 33
Exercisesp. 40
Referencesp. 42
Adverse Selection: Examples and Extensionsp. 43
Examples of Applicationsp. 43
Regulating a Firmp. 43
Optimal Taxationp. 47
The Insurer as a Monopolistp. 51
Extensionsp. 57
Perfect Competition in Contractsp. 57
Multiple Principalsp. 61
The Theory of Auctionsp. 65
Collusionp. 73
Risk-Averse Agentsp. 76
Multidimensional Characteristicsp. 78
Bilateral Private Informationp. 82
Type-Dependent Reservation Utilitiesp. 88
Auditing the Agentp. 89
Exercisesp. 91
Referencesp. 93
Signaling Modelsp. 97
The Market for Secondhand Carsp. 98
Costly Signalsp. 99
Separating Equilibriap. 102
Pooling Equilibriap. 103
The Selection of an Equilibriump. 103
Costless Signalsp. 107
A Simple Examplep. 108
The General Modelp. 109
Other Examplesp. 114
The Informed Principalp. 116
Exercisesp. 117
Referencesp. 118
Moral Hazardp. 119
A Simple Examplep. 122
The Standard Modelp. 124
The Agent's Programp. 125
The Principal's Programp. 126
Properties of the Optimal Contractp. 129
Extensionsp. 134
Informativeness and Second-Best Lossp. 134
A Continuum of Actionsp. 135
The Limited Liability Modelp. 136
An Infinity of Outcomesp. 138
The Multisignal Casep. 139
Imperfect Performance Measurementp. 140
Models with Several Agentsp. 140
Models with Several Principalsp. 142
The Robustness of Contractsp. 144
The Multitask Modelp. 146
Examples of Applicationsp. 149
Insurancep. 149
Wage Determinationp. 151
Exercisesp. 156
Referencesp. 159
The Dynamics of Complete Contractsp. 161
Commitment and Renegotiationp. 162
Strategic Commitmentp. 164
Adverse Selectionp. 168
Full Commitmentp. 170
Long-Term Commitmentp. 172
No Commitmentp. 176
Short-Term Commitmentp. 177
Conclusionp. 178
Moral Hazardp. 179
Renegotiation after Effortp. 179
Convergence to the First-Bestp. 181
Finitely Repeated Moral Hazardp. 183
Referencesp. 190
Incomplete Contractsp. 193
Property Rights, Holdup, and Underinvestmentp. 195
The Buyer-Seller Modelp. 196
The Complete Contractp. 197
Incomplete Contracts and Property Rightsp. 198
The Irrelevance Theoremsp. 200
Restoring Efficient Investment Incentivesp. 200
Using Mechanism Designp. 204
Concluding Remarksp. 205
Referencesp. 209
Some Empirical Workp. 211
Dealing with Unobserved Heterogeneityp. 212
Auctionsp. 216
Tests of Asymmetric Information in Insurance Marketsp. 218
Referencesp. 221
Some Noncooperative Game Theoryp. 223
Games of Perfect Informationp. 224
Nash Equilibriump. 224
Subgame-Perfect Equilibriump. 224
Games of Incomplete Informationp. 226
Bayesian Equilibriump. 226
Perfect Bayesian Equilibriump. 227
Refinements of Perfect Bayesian Equilibriump. 229
Referencesp. 232
Name Indexp. 233
Subject Indexp. 235
Table of Contents provided by Ingram. All Rights Reserved.

ISBN: 9780262195256
ISBN-10: 0262195259
Series: The MIT Press
Audience: Professional
For Ages: 18+ years old
Format: Hardcover
Language: English
Number Of Pages: 256
Published: 15th March 2005
Publisher: MIT Press Ltd
Country of Publication: US
Dimensions (cm): 22.9 x 15.2  x 1.1
Weight (kg): 0.5
Edition Number: 2
Edition Type: New edition