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Hart and Holmström’s Contributions to Contract Theory

Author

Listed:
  • László Á. Kóczy

    (Institute of Economics of the Research Centre for Economic and Regional Studies, Óbuda University)

  • Hubert János Kiss

    (Institute of Economics of the Research Centre for Economic and Regional Studies, Eötvös Loránd University)

Abstract

The Prize in Economic Sciences in Memory of Alfred Nobel 2016 was awarded jointly to Oliver Hart and Bengt Holmström for their contributions to contract theory. Contract theory is a field of applied game theory, bringing into focus the conflict between the owner – the principal – and the company’s appointed manager – the agent. In this study, we present the Principal–Agent model proposed by Holmström and describe a few offshoots of the original model, before proceeding to discuss Hart’s research on the aspects of ownership in Principal–Agent models. Although the two laureates are primarily known for their theoretical models, in our introduction we disregard the unnecessary formulas and illustrate the models with examples.

Suggested Citation

  • László Á. Kóczy & Hubert János Kiss, 2017. "Hart and Holmström’s Contributions to Contract Theory," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 16(1), pages 162-174.
    • Handle: RePEc:mnb:finrev:v:16:y:2017:i:1:p:162-174
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    contract theory; incentives; the Principal-Agent problem; Nobel prize; risk; property rights;
    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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