Who published the 1937 article that launched modern contract theory in economics?
Ronald H. Coase published a 1937 article titled The Nature of the Firm that launched modern contract theory in economics.
Questions about Contract theory
Short answers, pulled from the story.
What are moral hazard and adverse selection in contract theory models?
Moral hazard refers to how much employee behavior remains concealed from employers regarding work intensity or care levels while adverse selection describes situations where the principal lacks information about specific characteristics of the agent at the time the contract is written.
When did Kenneth Arrow provide the first formal treatment of contract theory within economics?
Kenneth Arrow provided the first formal treatment of this topic during the 1960s within the field of economics.
How do Steven Shavell Sanford J. Grossman and Oliver D. Hart model risk-averse agents in contracts?
Steven Shavell, Sanford J. Grossman, and Oliver D. Hart pioneered the 1970s and 1980s model featuring risk-averse agents where wage depends on output which depends on effort.
Why does incomplete contract theory focus on relationship-specific investments?
It may be impossible to reach agreement on every state of the world because relationship-specific investments make completion prohibitively expensive.