University of Essex

EC951-7-AU-CO:
Economics of Incentives

The details

Year: 2023/24

Department: Economics

Campus: Colchester Campus

Term: Autumn

Level: Postgraduate: Level 7

Status: Current

Start date: Thursday 05 October 2023

End date: Friday 15 December 2023

Credits: 20

Last updated: 14 November 2023

Requisites for this module

Pre-requisites: (none)

Co-requisites: (none)

Pre and / or co-requisites: (none)

Prohibited modules: (none)

Key module (requisite for): (none)

Key module for

MSC L10412 Management Economics,
MSC L104EB Management Economics,
MSC L104JS Management Economics,
MSC L1N212 Economics of Business and Management

Module description

This module aims to provide students with a good intuitive and formal understanding of the basics of contract theory, incentive theory, and the theory of the firm.

Students should understand how to apply these to real world issues in policymaking, finance, and management, how these fit into the broader economic models and discussion, and to use this in conducting research. In this context, they should be able to set up a simple formal model, understand its key assumptions and components, derive its predictions, explaining the intuition behind these results.

Module aims

The aims of this module are:

To provide students with a good intuitive and formal understanding of the basics of contract theory, incentive theory, and the theory of the firm.

To give students an understanding of how to apply these to real world issues in policymaking, finance, and management, how these fit into the broader economic models and discussion, and to use this in conducting research.

To enable students to set up a simple formal model, understand its key assumptions and components, derive its predictions, explaining the intuition behind these results.

Module learning outcomes

By the end of this module, students will be expected to be able to:

Attain a deeper understanding of the principles behind compensation schemes, and the trade-offs at play in setting incentives.

Gain a broad understanding of key issues related to the scope of the firm that will be relevant to private enterprise decisions, merger analysis, and government procurement.

Gain logical thinking skills, and the ability to build a model distilling the essence of the problem, abstracting from complications, but being aware of the costs of such simplifications.

Discuss economic theory in plain language, relating this to real world issues and empirical data.

Gain literacy and numeracy skills, as well as research, and communication skills.

Module information

No additional information available.

Learning and teaching methods

This module will be delivered via:

One 2-hour lecture per week.
One 1-hour class per week.

Bibliography

Trouble with accessing resources? (no date). Available at: https://essex.libwizard.com/id/0ca0192f0d51b4c22469d6030fd1306f.
Jean-Jacques Laffont and David Martimort (2002c) The theory of incentives: the principal-agent model. Princeton, NJ: Princeton University Press. Available at: https://www.jstor.org/stable/j.ctv7h0rwr.
Simon, C.P. and Blume, L. (1994) Mathematics for economists. New York: Norton.
Holmstrom, B. (1982b) ‘Moral Hazard in Teams’, The Bell Journal of Economics, 13(2). Available at: https://doi.org/10.2307/3003457.
‘Rank-Order Tournaments as Optimum Labor Contracts’ (1981b) Journal of Political Economy, 89(5), pp. 841–864. Available at: https://www.jstor.org/stable/1830810.
‘Two-Sided Uncertainty and “Up-or-Out” Contracts’ (1988b) Journal of Labor Economics, 6(4), pp. 423–444. Available at: https://www.jstor.org/stable/2534850?seq=1#metadata_info_tab_contents.
Bengt, H. and Paul, M. (1991) ‘Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership, and Job Design’, Journal of Law, Economics and Organization, 7, pp. 24–52. Available at: https://www.jstor.org/stable/764957.
Winter, E. (no date) ‘Incentives and Discrimination’, American Economic Review [Preprint]. Available at: https://pubs.aeaweb.org/doi/pdfplus/10.1257/0002828041464434.
Prendergast, C. (1993b) ‘The Role of Promotion in Inducing Specific Human Capital Acquisition’, The Quarterly Journal of Economics, 108(2), pp. 523–534. Available at: https://doi.org/10.2307/2118343.

The above list is indicative of the essential reading for the course.
The library makes provision for all reading list items, with digital provision where possible, and these resources are shared between students.
Further reading can be obtained from this module's reading list.

Assessment items, weightings and deadlines

Coursework / exam	Description	Coursework weighting
Coursework	Mid-term Test	100%
Exam	Main exam: In-Person, Open Book, 120 minutes during January
Exam	Reassessment Main exam: In-Person, Open Book, 120 minutes during Summer (Main Period)

Exam format definitions

Remote, open book: Your exam will take place remotely via an online learning platform. You may refer to any physical or electronic materials during the exam.
In-person, open book: Your exam will take place on campus under invigilation. You may refer to any physical materials such as paper study notes or a textbook during the exam. Electronic devices may not be used in the exam.
In-person, open book (restricted): The exam will take place on campus under invigilation. You may refer only to specific physical materials such as a named textbook during the exam. Permitted materials will be specified by your department. Electronic devices may not be used in the exam.
In-person, closed book: The exam will take place on campus under invigilation. You may not refer to any physical materials or electronic devices during the exam. There may be times when a paper dictionary, for example, may be permitted in an otherwise closed book exam. Any exceptions will be specified by your department.

Your department will provide further guidance before your exams.

Overall assessment

Coursework	Exam
50%	50%

Reassessment

Coursework	Exam
0%	100%

Module supervisor and teaching staff

Supervisor: Dr Aditya Kuvalekar, email: a.kuvalekar@essex.ac.uk.

Teaching staff: Lectures & Classes: Dr Aditya Kuvalekar

Contact details: For further information, send an email message to pgteco@essex.ac.uk.

Availability

Available to incoming Essex Abroad / Exchange students: Yes

Available to Outside Option: No

Available to Audit: No

External examiner

Name: Dr Domenico Moro

Institution: university of Birmingham

Academic role: Lecturer

Resources

Teaching materials: Available via Moodle

Lecture recording: Of 31 hours, 29 (93.5%) hours available to students:
0 hours not recorded due to service coverage or fault;
2 hours not recorded due to opt-out by lecturer(s), module, or event type.

Further information

Department website: Economics

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Module Directory

EC951-7-AU-CO:Economics of Incentives