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  3. Journal of Economic Literature
  4. December 2014
  5. Behavioral Contract Theory

Journal of Economic Literature

ISSN 0022-0515 (Print) | ISSN 2328-8175 (Online)

Behavioral Contract Theory

  • Botond Koszegi
Journal of Economic Literature
vol. 52, no. 4, December 2014
(pp. 1075–1118)
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Abstract

This review provides a critical survey of psychology-and-economics ("behavioral-economics") research in contract theory. First, I introduce the theories of individual decision making most frequently used in behavioral contract theory, and formally illustrate some of their implications in contracting settings. Second, I provide a more comprehensive (but informal) survey of the psychology-and-economics work on classical contract-theoretic topics: moral hazard, screening, mechanism design, and incomplete contracts. I also summarize research on a new topic spawned by psychology and economics, exploitative contracting, that studies contracts designed primarily to take advantage of agent mistakes. (JEL A12, D03, D82, D86)

Citation

Koszegi, Botond. 2014. "Behavioral Contract Theory." Journal of Economic Literature, 52 (4): 1075–1118. DOI: 10.1257/jel.52.4.1075

Additional Materials

JEL Classification

  • A12 Relation of Economics to Other Disciplines
  • D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
  • D82 Asymmetric and Private Information; Mechanism Design
  • D86 Economics of Contract: Theory