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2023/2024  KAN-COECO1065U  Contract, Agency and Game Theory

English Title
Contract, Agency and Game Theory

Course information
Language English
Course ECTS 7.5 ECTS
Type Mandatory (also offered as elective)
Level Full Degree Master
Duration One Semester
Start time of the course Autumn
Timetable Course schedule will be posted at calendar.cbs.dk
Max. participants 50
Study board
Study Board for MSc in Advanced Economics and Finance
Course coordinator
  • Lars Peter Østerdal - Department of Economics (ECON)
Main academic disciplines
  • Economics
Teaching methods
  • Face-to-face teaching
Last updated on 31-01-2023

Relevant links
Learning objectives
  • set up and analyze static and dynamic games and incomplete information games, as well as apply the Revelation Principle
  • use the concepts of hidden action, hidden information and signaling to design contracts under asymmetric information
  • solve the associated contracting problems mathematically
  • link selected themes in business economics and microeconomics to game theory and contract theory
Course prerequisites
This is a mandatory course for the MSc in Advanced Economics and Finance. It is assumed that students have knowledge similar to the entry requirements for this programme. The course has 41 class hours and there is a high level of interaction between lecturer and students, and in general a high work load.

To sign up send a 1-page motivational letter and a grade transcript to ily.stu@cbs.dk before the registration deadline for elective courses. You may find the registration deadlines on my.cbs.dk ( https:/​/​studentcbs.sharepoint.com/​graduate/​pages/​registration-for-electives.aspx )

Please also remember to sign up through the online registration..
Prerequisites for registering for the exam (activities during the teaching period)
Number of compulsory activities which must be approved (see section 13 of the Programme Regulations): 2
Compulsory home assignments
The course includes two obligatory, group-based exercise packs. They must be answered and passed in order to participate in the final exam. The teachers will give feed-back to the individual groups as part of this activity. The exercises are made in groups of 3-4 students.

If a student - due to documented illness or failed attempts - does not pass both assignments, the student will be given a final chance to retake this part of the course by handing in a new assignment prior to the final exam.
Examination
Contract, Agency and Game Theory:
Exam ECTS 7,5
Examination form Written sit-in exam on CBS' computers
Individual or group exam Individual exam
Assignment type Written assignment
Duration 4 hours
Grading scale 7-point grading scale
Examiner(s) One internal examiner
Exam period Winter
Aids Limited aids, see the list below:
The student is allowed to bring
  • An approved calculator. Only the models HP10bll+ or Texas BA ll Plus are allowed (both models are non-programmable, financial calculators).
  • Language dictionaries in paper format
The student will have access to
  • Advanced IT application package
Make-up exam/re-exam
Same examination form as the ordinary exam
The number of registered candidates for the make-up examination/re-take examination may warrant that it most appropriately be held as an oral examination. The programme office will inform the students if the make-up examination/re-take examination instead is held as an oral examination including a second examiner or external examiner.
Course content, structure and pedagogical approach

Contract and agency theory gives a fundamental understanding of motivation and coordination issues under asymmetric information. The theory hereby also provides an analytical basis of micro- and business economics.

The course consists of two parts. In the first part, we cover game theoretical results and in particular, we discuss static games, dynamic games including repeated games, and Bayesian games. In the second part, the basic ideas of contract theory are presented. We will in particular analyse contracts, where one party has hidden information (adverse selection) and/or can take a hidden action (moral hazard). We will also discuss some more advanced models with multiple agents, multiple periods etc. In addition, we will cover key aspects of more general mechanism design and discuss incomplete contracts. The aim of this part is to get a good understanding of the basic trade-offs involved, e.g. motivation versus risk sharing, and the basic mechanisms (such as information collection, menu of contracts, signalling etc). The aim is also to train the students to actually make optimal contracts and related mechanisms in simple settings by formulation and solving the associated mathematical programmes.
Description of the teaching methods
Lectures, exercises and continuous feedback.
Feedback during the teaching period
Feedback is provided in numerous ways throughout the course:

During office hours, we can discuss particular problems and give advice on individual academic development questions

During classes, we will do have small exercises and discussions of solutions suggested by (groups of) students

The group based obligatory exercise packs are returned and commented on in group-meetings with the lecturers.

The course is evaluated by the students and the teachers discuss the evaluations with the students.
Student workload
Teaching 41 hours
Preparation 148 hours
Exam 17 hours
Further Information

Part of this course may also be taken as a PhD course for a limited number of PhD students.
Expected literature

An Introduction to the Economics of Information, Ines Macho-Stadler & K- David Perez-Castrillo, OUP (2nd edition)


A Primer in Game Theory; Robert Gibbons, Pearson
Last updated on 31-01-2023