Introduction

The economic theory of contracts, i.e. the theory of incentives, asymmetric information, and institutional design, has been a highly active field of research in microeconomics in the last three decades. Emphasizing the importance of unverifiable actions and privately held information, contract theory provides formal tools to analyze various aspects of the organization of economic activities and relationships. For instance, issues as diverse as the allocation of property rights (e.g., the pros and cons of vertical and lateral integration or the trade-offs between public and private ownership), the design of selling and procurement mechanisms, the provision of investment incentives in trading relationships, the design of wage schemes, and the assignment of different tasks within firms, have all been fruitfully studied from a contract-theoretic perspective.