Information, Incentives and Contracts - BUSI97251
This module introduces basic models in economics of information, contract theory, market design and their applications.
Firms, workers and consumers have to act in situations where they are dealing with a party that knows more than they do, such as the insurance applicant who may be a poor driver, the manager who knows more about the markets her firm is operating in than its shareholders, or brand-name owners (as in franchised businesses) do. This module discusses these topics through the Principal-Agent paradigm and covers the tools that economists have developed to analyse and resolve such issues. We focus on solutions that can give people incentives to act in ways that do not take too much advantage of their superior information.
After overviewing the theoretical foundations the module will discuss applications of the issues to franchise contracts. Franchising nowadays represents a key growth strategy for many businesses worldwide, esp. in service industries – including retail, restaurants, hotels, small service firms, car dealerships; hospitals sometimes also operate through franchise contracts. Many entrepreneurs often start as franchisees of companies with widely recognized brand names (e.g. McDonald’s) in order to learn how to do the business.