Oliver Hart and Bengt Holmström were awarded the 2016 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel for their fundamental contributions to contract theory. This article offers a short summary and discussion of their path breaking work.

This chapter surveys major issues arising in the economic analysis of contract law. It begins with an introductory discussion of scope and methodology, and then addresses four main topics that correspond to the major doctrinal divisions of the law of contracts. These divisions include freedom of...

We analyze the Moral Hazard problem, assuming that agents are inequity averse. Our results differ from conventional contract theory and are more in line with empirical findings than standard results. We find: First, inequity aversion alters the structure of optimal contracts. Second, there is a...

The standard economic analysis of the insured-insurer relationship under moral hazard postulates a simplistic setup that hardly explains the many features of an insurance contract. We extend this setup to include the situation that the insured was facing at the time of the accident and the...

In this overview we give a short survey of the way in which the theory of the firm has been formulated within the `mainstream' of economics, both `past' and `present'. One aim is to give an outline of the historical developments that led to the contemporary theories. As to a breakpoint between...

This is a revised edition of Walker (2017). New sections or subsections have been added on the X-inefficiency model, the division of labour and the firm - both pre and post-1970, ownership of the firm and the human capital based firm. Additions have been made to sections on entrepreneurship, the...

This survey gives an overview of the theory of the firm as it is formulated within the contemporary 'mainstream' of economics. Two groupings of theories are briefly discussed: principal-agent and incomplete contract models. Next, three of the most recent contributions regarding firms are...

This paper analyzes abuse of authority in a principal-supervisor-agent hierarchy under moral hazard. We characterize the optimal contracts when the supervisor takes advantage of his authority by blackmailing the agent. We show that the optimal policy for the principal is to deter abuse of...

This paper argues that academics, politicians, and the media have six commonly held but misguided beliefs about corporate governance. While Armstrong, Guay, and Weber (2010) discuss some of these misconceptions, a wider recognition that these beliefs are actually “myths” is important. They...