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ECOM-419 Contract Theory, 5 cr 
Code ECOM-419  Validity 01.01.2017 -
Name Contract Theory  Abbreviation Contract Theory 
Scope5 cr   
TypeAdvanced studies
  GradingGeneral scale 
    Can be taken more than onceno
Unit Master's Programme in Economics 

Hannu Vartiainen 

Target group 

Master’s Programme in Economics. Open to other students as well.


Annually in the third period

Learning outcomes 

After the course, the student should

  • Be familiar with the principles of contract theory: the main questions and the useful modelling frameworks 
  • Be able to model real world institutions using the theory of incentives
Completion methods 

The course consists of lectures (24 hours) and exercise sessions (4 hours), where solutions to the homework assignments are discussed. The course is completed by a final exam.


Knowledge of the basic concepts of microeconomic theory

Recommended optional studies 

Knowledge of basic analysis is certainly an advantage


The course covers the key areas of incentive theory, information economics and organisation theory, highlighting common themes and methodologies, and presenting the main ideas in an accessible way. Discussed applications include labour economics, industrial organisation and corporate finance. The course outline is as follows: 1. Moral hazard: static one principal, one agent model. 2. Moral hazard in teams and tournaments. 3. Adverse selection. 4. Mechanism design and auctions. 5. Implementation, incomplete contracts, and authority.

Study materials and literature 

In addition to the lecture slides, required readings include Bolton and Dewatripont (2005), Contract Theory, MIT Press.

Activities and teaching methods in support of learning 

All material related to the course is delivered through Moodle. It also contains a discussion forum where students can discuss issues related to the course with each other and the teacher.

Assessment practices and criteria 

The grade on a scale from 0 (fail) to 5 is based on the final exam. Problem sets are highly recommended but not mandatory.


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