Advanced Microeconomics for Contract, Institutional, and Organizational Economics

A graduate textbook on microeconomics, covering decision theory, game theory, and the foundations of contract theory, with a unique focus on the empirical.

This graduate-level text on microeconomics, covering such topics as decision theory, game theory, bargaining theory, contract theory, trade under asymmetric information, and relational contract theory, is unique in its emphasis on the interplay between theory and evidence. It reviews the microeconomic theory of exchange “from the ground up,” aiming to produce a set of models and hypotheses amenable to empirical exploration, with particular focus on models that are useful for the study of contracts, institutions, and organizations. It explores research that extends price theory to the exchange of commodities when markets are incomplete, discussing recent developments in the field.
            Topics covered include the relationship between theory and evidence; decision theory as it is used in contract theory and institutional design; game theory; axiomatic and strategic bargaining theory; agency theory and the class of models that are considered to constitute contract theory, with discussions of moral hazard and trade with asymmetric information; and the theory of relational contracts. The final chapter offers a nontechnical review that provides a guide to which model is the most appropriate for a particular application. End-of-chapter exercises help students expand their understanding of the material, and an appendix provides brief introduction to optimization theory and the welfare theorem of general equilibrium theory. Students are assumed to be familiar with general equilibrium theory and basic constrained optimization theory.

W. Bentley MacLeod is Sami Mnaymneh Professor of Economics, Professor of International and Public Affairs, and Affiliated Law Faculty at Columbia University.

Preface xi
1 Introduction 1
2 Evidence, Models, and Decision Making 17
3 Decision Theory 35
4 Game Theory 65
5 Bargaining and the Buyer-Seller Model 103
6 Reliance, Holdup, and Breach 129
7 Insurance and Moral Hazard 173
8 Trade with Asymmetric Information 205
9 Relational Contracts 257
10 Opportunism and Conflict in Agency Relationships 299
11 Summary 335
Appendix 353
Notes 363
References 373
Index 389