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Behavioral Contract Theory

Author

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  • Botond Köszegi

Abstract

This review provides a critical survey of psychology-and-economics ("behavioral-economics") research in contract theory. First, I introduce the theories of individual decision making most frequently used in behavioral contract theory, and formally illustrate some of their implications in contracting settings. Second, I provide a more comprehensive (but informal) survey of the psychology-and-economics work on classical contract-theoretic topics: moral hazard, screening, mechanism design, and incomplete contracts. I also summarize research on a new topic spawned by psychology and economics, exploitative contracting, that studies contracts designed primarily to take advantage of agent mistakes. (JEL A12, D03, D82, D86)

Suggested Citation

  • Botond Köszegi, 2014. "Behavioral Contract Theory," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 1075-1118, December.
  • Handle: RePEc:aea:jeclit:v:52:y:2014:i:4:p:1075-1118
    Note: DOI: 10.1257/jel.52.4.1075
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Rajkamal Iyer & Antoinette Schoar, 2015. "Ex Post (In) Efficient Negotiation and Breakdown of Trade," American Economic Review, American Economic Association, vol. 105(5), pages 291-294, May.
    2. Felix Kölle & Dirk Sliwka & Nannan Zhou, 2016. "Heterogeneity, inequity aversion, and group performance," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 46(2), pages 263-286, February.
    3. Donze, Jocelyn & Gunnes, Trude, 2018. "Becoming “We” instead of “I”, identity management and incentives in the workplace," Journal of Economic Behavior & Organization, Elsevier, vol. 148(C), pages 105-120.
    4. Horan, Sean, 2016. "A simple model of two-stage choice," Journal of Economic Theory, Elsevier, vol. 162(C), pages 372-406.
    5. Izabela Jelovac & Samuel Kembou Nzale, 2017. "Regulation and Altruism," Working Papers halshs-01616193, HAL.
    6. John J. Horton & Richard J. Zeckhauser, 2016. "The Causes of Peer Effects in Production: Evidence from a Series of Field Experiments," NBER Working Papers 22386, National Bureau of Economic Research, Inc.
    7. Huck, Steffen & Weizsäcker, Georg, 2015. "Markets for leaked information," Discussion Papers, Research Unit: Economics of Change SP II 2015-305, Social Science Research Center Berlin (WZB).
    8. Stefano DellaVigna & Devin Pope, 2018. "What Motivates Effort? Evidence and Expert Forecasts," Review of Economic Studies, Oxford University Press, vol. 85(2), pages 1029-1069.
    9. repec:hrv:faseco:34330194 is not listed on IDEAS
    10. Mark Armstrong, 2016. "Nonlinear Pricing," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 583-614, October.
    11. Schumacher, Heiner & Thysen, Heidi, 2017. "Equilibrium Contracts and Boundedly Rational Expectations," Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168085, Verein für Socialpolitik / German Economic Association.
    12. Michael Krapp & Kai Sandner, 2016. "Impact of an equal pay norm on the optimal design of incentive contracts," Journal of Business Economics, Springer, vol. 86(3), pages 301-338, April.
    13. D׳Agostino, Elena & Seidmann, Daniel J., 2016. "Protecting buyers from fine print," European Economic Review, Elsevier, vol. 89(C), pages 42-54.
    14. Marie-Catherine Riekhof, 2016. "The Insurance Premium in the Interest Rates of Interlinked Loans in a Small-scale Fishery," CER-ETH Economics working paper series 16/264, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    15. Koch, Alexander & Nafziger, Julia & Nielsen, Helena Skyt, 2015. "Behavioral economics of education," Journal of Economic Behavior & Organization, Elsevier, vol. 115(C), pages 3-17.
    16. Andrzej Baniak & Peter Grajzl, 2014. "Controlling Product Risks when Consumers are Heterogeneously Overconfident: Producer Liability vs. Minimum Quality Standard Regulation," CESifo Working Paper Series 5003, CESifo Group Munich.
    17. repec:eee:finlet:v:22:y:2017:i:c:p:5-10 is not listed on IDEAS

    More about this item

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law

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