Neoclassical economics traditionally viewed a firm as a production set. The second part of the course revolves around the Economics of Organizations. How should the principal cope with this situation? In the context of organizations, we will see how firm’s owners succeed in aligning the objectives of its various members, such as workers, supervisors, and managers, with profit maximization. This private information can be of two types: either the agent can take a hidden action (known as moral hazard) or the agent has some private knowledge (known as adverse selection). The principal delegates a task to the agent who will obtain some private information as a result. We will focus on settings with two parties: a principal (e.g. Economics of Information looks at situations where one of the contracting parties have private information. This had deep implications for economic policy. This field was a revolution in economics, overturning long standing presumptions, including the one of market efficiency.
The first part of this course provides an introduction to the Economics of Information.
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