The Economics of Contracts: A Primer

Although it is one of the major achievements in the history of economic thought, the general equilibrium model is not completely satisfactory as a descriptive tool. In the 1970s several economists settled on a new way to study economic relationships that is often called the "economics of information." The theory of contracts is one of its main building blocks.<br /> <br /> The theory of contracts uses partial equilibrium models that take into account the full complexity of strategic interactions between privately informed agents in well-defined institutional settings. The models sum up the constraints imposed by the prevailing institutional setting through a contract, either explicit or implicit. They make intensive use of noncooperative game theory with asymmetric information.<br /> <br /> <I>The Economics of Contracts</I> introduces graduate students and nonspecialist professional economists to the theory of contracts. It grew out of a course Professor Salanié gave to third-year Stanford graduate students and third-year students at the Ecole Nationale de la Statistique et de l'Administration Economique. The book focuses on the methods used to analyze the models, but also discusses a few of the many applications the theory has generated in various fields of economics. The author's goal is to give readers the basic tools to create their own applications.