- introduce basic concepts of principal-agent models
- explain main trade-offs the principal is facing when designing an optimal contract
- connect studied theoretical concepts to real life
- identify and solve models that are based on adverse selection
- Explain the main tradeoffs in models with moral hazard.
- solve special cases (binary model, linear model)
- Identify adverse selection and moral hazard in advanced models, be able to solve simple cases
- Apply deferred acceptance algorithm to one-to-one matching problems.
- Adverse selectionScreening model with two types. Application to the seller-buyer, lender-borrower, employer-employee. Extensions: ex ante contracting, limited liability, different outside options, optimal income taxation.
- Moral hazardSimple model with binary outcome and binary action. Linear contracts. Multitasking
- Advanced topicsMoral hazard in teams. Career concerns. Relational contracts.
- Matching theoryDeferred acceptance algorithm. Lattice structure of stable matchings. Strategy-proofness: impossibility result. Many-to-one matching.
- Interim assessment (4 module)0.2 * final + 0.4 * home assignments + 0.2 * in-class quizzes + 0.2 * midterm
- Patrick Bolton, & Mathias Dewatripont. (2005). Contract Theory. The MIT Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.mtp.titles.0262025760
- Roth, A. E., & Sotomayor, M. A. O. (1992). Two-Sided Matching. Cambridge University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.cup.cbooks.9780521437882
- Microeconomic theory, Mas-Colell A., Whinston M. D., 1995