This course will cover the basics of contract theory and its application to economic problems. A contract is a set of rules that facilitates interaction among individuals beyond the simplest forms of barter. You have already encountered simple contracts; for example, in the form of spot labor contracts (exchanging leisure for goods) or borrowing and saving agreements (exchanging resources today for resources tomorrow). This course studies more involved contracts. The basic setup will feature the parties involved in the contract having conflicting objectives. In addition contracting will be limited by two types of frictions: we will look at environments where a party in the contract has some valuable, privately observed information; and we will consider environments where at least one party in the contractual relationship cannot credibly commit to it.
Lecture: 100min/wk and Recitation: 50min/wk