040249 UK Contract Theory (MA) (2018S)

Which contract should an employer sign with a new employee if she cannot observe how much he works? Why should a person obtain a bachelor's degree or MBA if it doesn't give her valuable skills for the labour market? Can a health insurance company tell if you have healthy habits by observing which insurance contract you choose? Classic contract theory deals with these questions.

Behavioural contract theory assumes that people are affected by different biases (for example, overconfidence or loss aversion) when making decisions and assesses how the results of classic contract theory change in the presence of such biases. Behavioural contract theory also shows that some contracts arise only if people are affected by some biases.

The aim of the course is to give the students an understanding of classical contract theory and of some recent developments in behavioural contract theory. The students will also practice preparing and delivering a presentation.