The Economics of Contracts and Information

Lecturer: Professor Anke Kessler, PhD (Simon Fraser University, Department of Economics)
Date: August 22 – August 25, 2017
Venue: Halle Institute for Economic Research (IWH) – Member of the Leibniz Association, Kleine Maerkerstrasse 8, 06108 Halle (Saale), Germany, conference room (ground floor)
Registration: until July 15, 2017 via e-mail: annett.hartung@iwh-halle.de

Announcement see pdf

The course is designed for at most 25 participants.

Objective
The course provides a short introduction to the theory of contracts and asymmetric information. By the end of the course, students should have developed a broad analytical knowledge about what constraints informational asymmetries place on the efficiency and profitability of economic transactions in both market and non-market environments. They should also have learned to explain and determine optimal institutional responses (specific mechanisms/contracts) that can be used to address these problems.

Course outline
I.   Asymmetric Information and the Failure of the Coase Theorem

II. Asymmetric Information and Market Failure
1. Adverse Selection
2. Monopolistic Screening
3. Signaling

III. Moral Hazard
1. Principal Agent Model with Hidden Action
2. Relational Contracts

IV. Behavioural Contract Theory

Schedule of classes
22 August:             10:00–12:00 and 13:00–17:30
23 August:                9:00–12:00 and 13:00–17:30
24 August:                9:00–12:00 and 13:00–17:30
25 August:                9:00–12:00 and 13:00–15:00

In preparation for the course, students should read the following material:

– any chapter(s) on Decisions under Uncertainty/Attitudes towards Risk in either one of the following textbooks:

Bolton, P. and M. Dewatripont (2004). Contract Theory, The MIT Press.
Jehle G.A. and P.J. Reny (2001), Advanced Microeconomics Theory, Addison Wesley.
Kreps, D.M. (1990), A Course in Microeconomic Theory, Princeton University Press.
Mas-Colell, A. Whinston, M.D. and Green, J.R. (1995). Microeconomic Theory, Oxford University Press.

– all of the following chapters from Gibbons, R. (1992)], Game Theory for Applied Economists, Princeton University Press

Theory: Subgame Perfection
Theory: Two-Stage Repeated Games
Theory: Infinitely Repeated Games
Theory: Static Bayesian Games and Bayesian Nash Equilibrium
Introduction to Perfect Bayesian Equilibrium

A detailed reading list and lecture notes will be distributed on the first day of class.