The Theory of Incentives: The Principal-Agent Model / Edition 1

The Theory of Incentives: The Principal-Agent Model / Edition 1

by Jean-Jacques Laffont, David Martimort
     
 

"Incentive theory is at the very core of economics. This text is a masterly exposition of the modern theory by one of the pioneers of the field, Jean-Jacques Laffont, together with one of its rising stars, David Martimort."—Eric Maskin, Institute for Advanced Study

"This book will surely be the standard technical reference in an important field for a

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Overview

"Incentive theory is at the very core of economics. This text is a masterly exposition of the modern theory by one of the pioneers of the field, Jean-Jacques Laffont, together with one of its rising stars, David Martimort."—Eric Maskin, Institute for Advanced Study

"This book will surely be the standard technical reference in an important field for a number of years—possibly for many if the field ceases to develop so rapidly. It is indeed a fine contribution to the economics literature."—Sir James Mirrlees, Cambridge University, 1996 Nobel Laureate in Economic Sciences

"The most important development in economics in the last forty years has been the study of incentives to achieve potential mutual gains when the parties have different degrees of knowledge. The time is ripe for a synthesis and systematization. Jean-Jacques Laffont has been one of the most important contributors to the field over the years, and David Martimort has shown his capacity for highly original work. This book, dealing with the basic models of the field, combines clarity, thoroughness, and great respect for historical development."—Kenneth J. Arrow, Stanford University, 1972 Nobel Laureate in Economic Sciences

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Product Details

ISBN-13:
9780691091846
Publisher:
Princeton University Press
Publication date:
12/26/2001
Edition description:
New Edition
Pages:
360
Sales rank:
1,497,083
Product dimensions:
6.70(w) x 10.08(h) x 0.99(d)

Table of Contents

Foreword
Introduction1
1Incentives in Economic Thought7
1.1Adam Smith and Incentive Contracts in Agriculture8
1.2Chester Barnard and Incentives in Management11
1.3Hume, Wicksell, Groves: The Free-Rider Problem14
1.4Borda, Bowen, Vickrey: Incentives in Voting15
1.5Leon Walras and the Regulation of Natural Monopolies18
1.6Knight, Arrow, Pauly: Incentives in Insurance18
1.7Sidgwick, Vickrey, Mirrlees: Redistribution and Incentives20
1.8Dupuit, Edgeworth, Pigou: Price Discrimination22
1.9Incentives in Planned Economies23
1.10Leonid Hurwicz and Mechanism Design25
1.11Auctions27
2The Rent Extraction-Efficiency Trade-Off28
2.1The Basic Model32
2.2The Complete Information Optimal Contract33
2.3Incentive Feasible Menu of Contracts36
2.4Information Rents39
2.5The Optimization Program of the Principal40
2.6The Rent Extraction-Efficiency Trade-Off41
2.7The Theory of the Firm Under Asymmetric Information46
2.8Asymmetric Information and Marginal Cost Pricing48
2.9The Revelation Principle48
2.10A More General Utility Function for the Agent51
2.11Ex Ante versus Ex Post Participation Constraints57
2.12Commitment63
2.13Stochastic Mechanisms65
2.14Informative Signals to Improve Contracting68
2.15Contract Theory at Work72
3Incentive and Participation Constraints with Adverse Selection82
3.1More than Two Types86
3.2Multidimensional Asymmetric Information93
3.3Type-Dependent Participation Constraint and Countervailing Incentives101
3.4Random Participation Constraint115
3.5Limited Liability118
3.6Audit Mechanisms and Costly State Verification121
3.7Redistributive Concerns and the Efficiency-Equity Trade-Off130
4Moral Hazard: The Basic Trade-Offs145
4.1The Model148
4.2Risk Neutrality and First-Best Implementation153
4.3The Trade-Off Between Limited Liability Rent Extraction and Efficiency155
4.4The Trade-Off Between Insurance and Efficiency158
4.5More than Two Levels of Performance163
4.6Informative Signals to Improve Contracting167
4.7Moral Hazard and the Theory of the Firm172
4.8Contract Theory at Work174
4.9Commitment Under Moral Hazard184
5Incentive and Participation Constraints with Moral Hazard187
5.1More than Two Levels of Effort191
5.2The Multitask Incentive Problem203
5.3Nonseparability of the Utility Function226
5.4Redistribution and Moral Hazard232
6Nonverifiability240
6.1No Contract at Date 0 and Ex Post Bargaining242
6.2Incentive Compatible Contract244
6.3Nash Implementation246
6.4Subgame-Perfect Implementation256
6.5Risk Aversion261
7Mixed Models265
7.1Adverse Selection Followed by Moral Hazard269
7.2Moral Hazard Followed by Adverse Selection294
7.3Moral Hazard Followed by Nonverifiability298
8Dynamics under Full Commitment303
8.1Repeated Adverse Selection307
8.2Repeated Moral Hazard319
8.3Constraints by Transfers: The Role of Implicit Incentives342
9Limits and Extensions347
9.1Informed Principal351
9.2Limits to Enforcement360
9.3Dynamics and Limited Commitment364
9.4The Hold-Up Problem370
9.5Limits to the Complexity of Contracts375
9.6Limits in the Action Space387
9.7Limits to Rational Behavior391
9.8Endogenous Information Structures395
References399
Author Index413
Subject Index417

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