Articles marked with an asterisk are highly recommended, and other articles are supplemental to the material. If requested, a reader will be made available next week. However, this may be quite costly, and all the starred articles will be on reserve in the library. The library also contains the books and the journals in which all the published articles on the reading list can be found.

I. Mechanism Design

• The General Mechanism Design Problem: The Revelation Principle

(*) Mas-Colell, A., M. Whinston and J. Green, Microeconomic Theory, Oxford University Press (henceforth MWG), Ch. 23 section B

• Dominant Strategy Implementation: The Groves-Clarke mechanism

(*) MWG Ch.23 section C

Groves, T. (1973), "Incentives in Teams," Econometrica 41:617-631

Laffont, J.J., and E. Maskin (1980), "A Differentiable Approach to Dominant-Strategy Mechanisms", Econometrica 48:1507-1520

D'Aspermont, C. and L.A. Gerard-Varet (1979), "Incentives and Incomplete Information," Journal of Public Economics 11:25-45

Myerson, R. and M. Satterthwaite (1983), "Efficient Mechanisms for Bilateral Trade," Journal of Economic Theory 29:265-281

II. Adverse Selection

II.1 Static Models.

(*) Fudenberg, D. and J. Tirole (1990) Game Theory, MIT Press (henceforth FT), ch. 7

(*) Baron, D. and R. Myerson (1982), "Regulating a Monopolist with Unknown Cost," Econometrica 50:991-930

(*) Maskin, E. and J. Riley (1984), "Monopoly with Incomplete Information," Rand Journal of Economics 15:171-196

(*) Mussa, M. and S. Rosen (1978) "Monopoly and Product Quality," Journal of Economic Theory 18:301-317

Laffont, J.-J. and J. Tirole (1986), "Using Cost Observation to Regulate Firms," Journal of Political Economy, 94:614-641

Mirrlees, J. (1971), "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, 38:175-208

Maskin E. and J. Tirole (1990), "The Principal-Agent Relationship with an Informed

Principal, I: Private Values," Econometrica 58:379-410

Maskin E. and J. Tirole (1992), "The Principal-Agent Relationship with an Informed

Principal, II: Common Values," Econometrica 58:379-410

Mathews, S. and J. Moore (1987), "Monopoly Provision of Quality and Warranties: An Exploration in the Theory of Multidimensional Screening," Econometrica 52:441-468 (especially Section 2)

II.2 Dynamic Models and Renegotiation

(*) Dewatripont, M. (1989), "Renegotiation and Information Revelation over Time: The Case of Optimal Labor Contracts," QJE, 104:589-619

Dewatripont, M., and E. Maskin (1990), "Contract Renegotiation in Models of Asymmetric Information," European Economic Review, 34:589-619

Freixas, X., R. Guesnerie and J. Tirole (1985), "Planning Under Incomplete Information and the Ratchet Effect," Review of Economic Studies, 52:173-191

(*) Laffont, J.-J., and J. Tirole (1988), "The Dynamics of Incentive Contracts," Econometrica, 59:1735-1754

Laffont, J.-J. and J. Tirole (1990), "Adverse Selection and Renegotiation in Procurement," Review of Economic Studies, 57:597-625

(*) Hart, O., and J. Tirole (1988), "Contract Renegotiation and Coasian Dynamics," Review of Economic Studies, 55:509-540

III. Moral Hazard

III.1 Static One-Agent Models

(*) Grossman, S., and O. Hart (1983) "An Analysis of the Principal-Agent Problem," Econometrica, 51:7-45

(*) Holmstrom, B. (1979), "Moral Hazard and Observability," Bell Journal of Economics, 10:74-91

Shavell, S. (1979), "Risk Sharing and Incentives in the Principal Agent Relationship," Bell Journal of Economics, 10:55-73

MWG Ch. 14 section B

(*) Rogerson, W. (1985), "The First-Order Approach to Principal-Agent Problems," Econometrica, 53:1357-1367

Jewitt, I. (1988) "Justifying the First-Order Approach to Principal-Agent Problems," Econometrica, 56:1177-1190

Innes, R. (1990) "Limited Liability and Incentive Contracting with Ex Ante Action Choices," Journal of Economic Theory 52:45-67

III.2 Static Multi-Agent Models

(*) Holmstrom, B. (1982) "Moral Hazard in Teams," Bell Journal of Economics,

13:324-340

Lazear, E. and S. Rosen (1981), "Rank Order Tournaments as Optimal Labor Contracts," Journal of Political Economy, 89:841-864

Mookherjee, D. (1984), "Optimal Incentive Schemes with Many Agents," Review of Economic Studies, 51:433-446

Ma, C.A., (1988), "Unique Implementation of Incentive Contracts with Many Agents," Review of Economic Studies, 55:555-571

III.3 Dynamic Models and Renegotiation

(*) Fudenberg, D., B. Holmstrom, and P. Milgrom (1990) "Short-term Contracts and Long-term Agency Relationships," Journal of Economic Theory, 51:1-31

Rogerson, W. (1985), "Repeated Moral Hazard," Econometrica, 53:69-76

(*) Holmstrom, B., and P. Milgrom (1987), "Aggregation and Linearity in the Provision of Intertemporal Incentives," Econometrica , 55:597-619

Radner, R. (1981), "Monitoring Cooperative Agreements in Repeated Princial Agent Relationships," Econometrica, 49:1127-1148

Fudenberg, D., and J. Tirole (1990), "Moral Hazard and Renegotiation in Agency Contracts," Econometrica 58:1279-1320

Hermalin, B., and M. Katz (1991) "Moral Hazard and Verifiability: The Effects of Renegotiation in Agency", Econometrica 59:1735-1753

Ma, C.A., (1991), "Adverse Selection in Dynamic Moral Hazard," Quarterly Journal of Economics, 106:255-275

Matthews, S. (1995), "Renegotiation of Sales Contracts," Econometrica 63:567-589

Segal, I., and S. Tadelis (1995), "Renegotiation in Agency Contracts: The Value of Information," mimeo

III.4 Multi-Task Analysis

(*) Holmstrom, B., and P. Milgrom (1991) "Mutlitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design," Journal of Law, Economics, and Organization, 57:25-52

IV. Theory of the Firm

IV.1 Established Views of the Firm

Alchian, A., and H. Demsetz (1972), "Production, Information Costs and Economic Organization," American Economic Review 62:777-795

Coase, R. (1937), "The Nature of the Firm," Economica, 4: 386-405, reprinted in O. Williamson and S. Winter (1993), eds., The Nature of the Firm: Origins, Evolution, and Development.

(*) Hart, O. (1995) Firms, Contracts, and Financial Structure, Oxford University Press, chapter 1

Simon, H. "A Formal Theory of the Employment Relationship," Econometrica 19:293-305

Williamson, O. (1985) The Economic Institutions of Capitalism, New York: Free Press,

IV.2 Incomplete Contracts and Renegotiation

(*) Aghion, P., Dewatripont, M. and P. Rey (1994) "Renegotiation Design and Unverifiable Information," Econometrica, 62:257-282

Grossman, S., and O. Hart (1986) "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration," Journal of Political Economy 94: 691-719

(*) Hart, O. (1995) "Firms, Contracts, and Financial Structure," Oxford University Press, chapters 2-3

Hart, O., and J. Moore (1988) "Incomplete Contracts and Renegotiation," Econometrica, 56:755-785

(*) Hart, O., and J. Moore (1990), "Property Rights and the Nature of the Firm," Journal of Political Economy, 98:1119-1158

IV.3 Foundations of Incomplete Contracts

Hart, O. (1995) "Firms, Contracts, and Financial Structure," Oxford University Press, chapter 4

Segal, I. (1995) "Complexity and Renegotiation: A Foundation for Incomplete Contracts," mimeo

Maskin E. and J. Tirole (1997), "Unforseen Contingencies, Property Rights and Incomplete Contracts," mimeo

(*) Tirole, J. (1995) "Incomplete Contracts: Where do We Stand?," mimeo

IV.4 Alternative approaches

Aoki, M. (1990) "Toward an Economic Model of the Japanese Firm," Journal of Economic Literature, 28:1-27

(*) Holmstrom, B., and P. Milgrom, (1994) "The Firm as an Incentive System," American Economic Review 84(4):972-991

Riordan, M. (1990) "What is Vertical Integration?"in M. Aoki, B. Gustafsson and O. Williamson, Eds. The Firm as a Nexus of Contracts, Sage Publications.

IV.5 The Firm as a Bearer of Reputation

(*) Kreps, D. (1990) "Corporate Culture and Economic Theory," in J. Alt and K. Shepsle, Eds. Perspectives on Positive Political Economy, Cambridge University Press

(*) Tadelis, S. (1997) "What's in a Name? Reputation as a Tradeable Asset," mimeo

V. Topics in Organization Theory

V.1 Career Concerns and Influence Activities

(*) Holmstrom, B. (1982) "Managerial Incentives Problems - A Dynamic Perspective," in Essays in Economics and Management in Honor of Lars Wahlbek, Helsinki

Holmstrom, B. and J. Ricard-I-Costa (1986) "Managerial Incentives and Capital Management," Quarterly Journal of Economics, 101:835-860

(*) Milgrom, P. (1988), "Employment Contracts, Influence Activities and Efficient Organization," Journal of Political Economy, 89:841-864

(*) Prendergast, C. and L. Stole (1996), "Impetuous Youngsters and Jaded Old-timers: Acquiring a Reputation for Learning," Journal of Political Economy, 104:1105-1134

V.2 Organizational Design

Maskin, E., Y. Qian and C. Xu. (1997) "Incentives and Information in M-Form and

U-Form Organizations: Theory and Evidence," mimeo

V.3 Collusion and Hierarchy

Bernheim, D. and M. Whinston (1986) "Common Agency," Econometrica, 54:923-942

Martimort, D. (1996) "Exclusive Dealing, Common Agency and Multiprincipals Incentive Theory," Rand Journal of Economics, 27:1-31

(*) Tirole, J. (1992) "Collusion and the Theory of the Firm," in J.J. Laffont, Ed. Advances in Economic Theory, Sixth World Congress of the Econometric Society, Cambridge University Press