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The contributions of Hart and Holmström to Contract Theory

Author

Listed:
  • László Á. Kóczy

    (Centre for Economic and Regional Studies, Hungarian Academy of Sciences and and Keleti Faculty of Business and Management, Óbuda University)

  • János Kiss Hubert

    (Centre for Economic and Regional Studies, Hungarian Academy of Sciences)

Abstract

The 2016 Nobel Memorial Prize in Economic Sciences was awarded to Oliver Hart and Bengt Holmström for their work on contract theory. Contract theory is a subfield of game theory where the conflict between the owner - the principal - and the CEO - or agent is at the centre of interest. In the following we explain the principal-agent model of Holmström with some extensions and then look at the property right aspects of these models based on Hart's work. Although the two researchers are recognised for their theoretical work, in our simple introduction we avoid complex formulae and illustrate the models with examples.

Suggested Citation

  • László Á. Kóczy & János Kiss Hubert, 2017. "The contributions of Hart and Holmström to Contract Theory," Working Paper Series 1701, Óbuda University, Keleti Faculty of Business and Management.
    • Handle: RePEc:pkk:wpaper:1701
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    More about this item

    Keywords

    contract theory; incentives; principal-agent problem; Nobel prize; risk; property rights JEL Codes: C72; D82; D86;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • 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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