Economic Information

The definition of a contract. Legal and economic approach to contracts. Freedom of contract.

Bounded rationality and contractual incompleteness. Asymmetric information (hidden characteristics, hidden information/ hidden action, hidden intentions) and opportunistic behavior. Adverse selection and the closing of markets. Signalling, screening and self-selection. Asset plasticity and moral hazard. Principal-agent problem and agency costs. A simple principle-agent experiment in the classroom. Controlling and preventing moral hazard (controlling the agent, incentive contracts, bonding, do-it-yourself method).

Attributes of transactions and the choice of a contract. Asset specificity, types of specific assets. Synergy effects, quasi-rents appropriation and hold-up problem. Classification of contracts (classical, neoclassical and relational contracting). Discrete alternative governance structures: market, hybrids and hierarchy. Self-enforcing agreements (Telser) and hostages (Williamson).

Hybrids: specific assets and their safeguards.

Institutional environment and its role in the choice of contract.

The role of trust. Economic approach to trust. Kreps: the trust game. Types of trust (contractual trust, competence trust and good will trust).

Explaining the internal structure of formal organizations: transaction costs approach.

Neoclassical theory of the firm. Explanations of the firm in the new institutional theory (F.Knight, R. Coase, A. Alchian and H.Demsetz, O.Williamson, O.Hart).

The market and the firm. Comparative analyses of the alternative coordination forms. Internal market and influence costs. The boundaries of the firm.

Ownership structure of the firm. A theory of the owner-monitor (Alchian and Demsetz, 1972).

Competing forms of economic organization, relative advantages of alternative structures (proprietorships, partnerships, open corporation, regulated firms, public enterprises, nonprofit organizations, labor-managed firms).

Separation of ownership and control in the open corporation. Opportunistic behavior of the managers and corporate control. Outsider and insider corporate governance. Privatization (Liberalization and Globalization) in India (and other transition economies): how to control the managers.

Stability of institutions and institutional change. The concept of institutional equilibrium. The main sources of institutional change. Centralized and spontaneous institutional change. The role of the state in the process of institutional change. The problem of compensation of the disadvantaged groups.

Theories of selection of efficient institutions in the process of competition (Alchian, Friedman). Institutional change and path dependence. Forms of path-dependence (weak form, semi-strong and strong forms).

Institutional changes in contemporary India.

Social mechanisms for constraining open access. Contractual theories of the state (Locke, Rousseau), Hobbes predatory theory of the state. North's model of the state. The regulatory role of the state in the Indian economy.

The legal system in the institutional framework; Philosophy of jurisprudence before utilitarinism; Formalism and legal realism; Legal Pragmatism; Utilitarian basis of justice and jurisprudence; Analytic jurisprudence; Legal positivism; normative theories; Feminist jurisprudence; Law and the economy; Posner's Moral relativism.

Corruption and its economics: the principal-agent framework; incentive structures; the threat system and the authority; collusion, preemptive collusion and ex-post collusion; Rent-seeking behavior and free-riding. Rent-seeking in teams. Rent-seeking in hierarchical systems; Basil model of corruption and its analysis. Classification of Corruption models. Game-theoretical approaches towards corruption study. Corruption in hierarchical structures. Dynamic corruption models. Welfare implications of corruption.