Prof Maitreesh Ghatak 32L 3.08, Prof Ronny Razin 32L 4.01, Prof Leonardo Felli 32L 4.02 and Prof Gilat Levy 32L 4.31

This course is available on the MPhil/PhD in Accounting, MSc in Econometrics and Mathematical Economics, MSc in Econometrics and Mathematical Economics (2 Year Programme), MSc in Economics, MSc in Economics (2 Year Programme) and MSc in Environmental Economics and Climate Change. This course is available with permission as an outside option to students on other programmes where regulations permit.

Students must have completed Introductory Course in Mathematics and Statistics (EC400).

The aim of the course is to provide a comprehensive introduction to the economics of moral hazard and adverse selection in strategic settings. The first part of the course covers the static theory of moral hazard and incentive contracts (static principal-agent models, moral hazard in teams and multi-task incentive contracts) and the dynamic theory of incentive contracts (efficiency of long-run relationships, short-term versus long-term contracts and renegotiation). The second part of the course discusses empirical methods to estimate the determinants of incentive contracts and the effect of contracts on performance. Empirical evidence on both contract design and the impact of incentives will be analysed. The third part of the course covers static mechanism design and self-selection contracts (revelation principle for Baynesian-Nash and dominant strategy equilibria, static screening contracts) with applications to non-linear pricing, optimal auctions and regulation, the theory of mechanism design with multiple agents (multiple agents screening and common agency), and the theory of dynamic mechanism design (commitment and renegotiation).

20 hours of lectures and 8 hours of seminars in the MT. 20 hours of lectures and 10 hours of seminars in the LT. 2 hours of seminars in the ST.

No one book covers the entire syllabus; a list of references will be provided at the start of the course. The following textbooks provide a treatment of part of the material presented in the course: Jean-Jacques Laffont, The Economics of Uncertainty and Information, MIT Press; D Fudenberg & J Tirole, Game Theory, MIT Press; Jean-Jacques Laffont & Jean Tirole, A Theory of Incentives in Procurement Regulations, MIT Press; Bernard Salanié, The Economics of Contracts: A Primer, MIT Press.

A three-hour written examination in the ST.

Non-EME students will be assessed as follows: A three-hour written examination in the ST (50%) and a 6000-word extended essay due at the beginning of the ST (50%).