Incomplete Contracts and Control†

Incomplete Contracts and Control† American Economic Review 2017, 107(7): 1731–1752 https://doi.org/10.1257/aer.107.7.1731 By Oliver Hart* The work on incomplete contracts cited by the prize committee began in the sum- mer of 1983, but it may be useful to say a bit about how I reached that point. As a graduate student, first at the University of Warwick and then at Princeton University, with a degree in mathematics behind me, I was drawn to general equilibrium theory, and my PhD thesis was on general equilibrium theory with incomplete markets. Although I ended up focusing on optimality and existence problems that could arise even in exchange economies, one of my primary interests was the theory of produc- tion. In a complete markets, Arrow-Debreu economy with perfect competition, it makes sense for a firm to maximize profit or net market value. But with incomplete markets, what is the generalization of this goal? More fundamentally, what happens if shareholders disagree about what the firm should do? I started to work on this topic after my thesis and as a result of a serendipitous assignment continued the work with Sanford Grossman in the summer of 1976. At some point we decided that, interesting though the disagreement between share- holders http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Review American Economic Association

Incomplete Contracts and Control†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
0002-8282
D.O.I.
10.1257/aer.107.7.1731
Publisher site
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Abstract

American Economic Review 2017, 107(7): 1731–1752 https://doi.org/10.1257/aer.107.7.1731 By Oliver Hart* The work on incomplete contracts cited by the prize committee began in the sum- mer of 1983, but it may be useful to say a bit about how I reached that point. As a graduate student, first at the University of Warwick and then at Princeton University, with a degree in mathematics behind me, I was drawn to general equilibrium theory, and my PhD thesis was on general equilibrium theory with incomplete markets. Although I ended up focusing on optimality and existence problems that could arise even in exchange economies, one of my primary interests was the theory of produc- tion. In a complete markets, Arrow-Debreu economy with perfect competition, it makes sense for a firm to maximize profit or net market value. But with incomplete markets, what is the generalization of this goal? More fundamentally, what happens if shareholders disagree about what the firm should do? I started to work on this topic after my thesis and as a result of a serendipitous assignment continued the work with Sanford Grossman in the summer of 1976. At some point we decided that, interesting though the disagreement between share- holders

Journal

American Economic ReviewAmerican Economic Association

Published: Jul 1, 2017

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