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The Theory of Incentives: The Principal-Agent Model Paperback – January 15, 2002

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Editorial Reviews

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"Incentive theory is at the very core of economics. This text is a masterly exposition of the modern theory by one of the pioneers of the field, Jean-Jacques Laffont, together with one of its rising stars, David Martimort." - Eric Maskin, Institute for Advanced Study "This book will surely be the standard technical reference in an important field for a number of years - possibly for many if the field ceases to develop so rapidly. It is indeed a fine contribution to the economics literature." - Sir James Mirrlees, Cambridge University, 1996 Nobel Laureate in Economic Sciences "The most important development in economics in the last forty years has been the study of incentives to achieve potential mutual gains when the parties have different degrees of knowledge. The time is ripe for a synthesis and systematization. Jean-Jacques Laffont has been one of the most important contributors to the field over the years, and David Martimort has shown his capacity for highly original work. This book combines clarity, thoroughness, and great respect for historical development." - Kenneth J. Arrow, Stanford University, 1972 Nobel Laureate in Economic Sciences

From the Back Cover


"Incentive theory is at the very core of economics. This text is a masterly exposition of the modern theory by one of the pioneers of the field, Jean-Jacques Laffont, together with one of its rising stars, David Martimort."--Eric Maskin, Institute for Advanced Study


"This book will surely be the standard technical reference in an important field for a number of years--possibly for many if the field ceases to develop so rapidly. It is indeed a fine contribution to the economics literature."--Sir James Mirrlees, Cambridge University, 1996 Nobel Laureate in Economic Sciences


"The most important development in economics in the last forty years has been the study of incentives to achieve potential mutual gains when the parties have different degrees of knowledge. The time is ripe for a synthesis and systematization. Jean-Jacques Laffont has been one of the most important contributors to the field over the years, and David Martimort has shown his capacity for highly original work. This book, dealing with the basic models of the field, combines clarity, thoroughness, and great respect for historical development."--Kenneth J. Arrow, Stanford University, 1972 Nobel Laureate in Economic Sciences


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Product Details

  • Paperback: 421 pages
  • Publisher: Princeton University Press (January 15, 2002)
  • Language: English
  • ISBN-10: 0691091846
  • ISBN-13: 978-0691091846
  • Product Dimensions: 7 x 1.1 x 10 inches
  • Shipping Weight: 1.7 pounds (View shipping rates and policies)
  • Average Customer Review: 4.8 out of 5 stars  See all reviews (10 customer reviews)
  • Amazon Best Sellers Rank: #407,281 in Books (See Top 100 in Books)

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Customer Reviews

Top Customer Reviews

By A Customer on July 9, 2003
Format: Paperback
This is a fabulous book, destined to become a classic reference summarizing some 30 years of research in a field that has now become mature and which has completely redefined and expanded the field of Modern Economics. Jean Jacques Laffont is a sure-bet future Nobel laureate for his contributions to the field (likely to be shared with that other Toulouse-based giant Jean Tirole). Martimort is a rising star in his own right.
This volume, the first in what is described as a two-volume survey, should be on the bookshelf of any serious economist or any graduate student trying to work her way through a serious first or second year microeconomic theory. It could also be used effectively to teach a first-year graduate or an advanced undergraduate course on asymmetric information and contracts.
What is so nice about the book pedagogically in my view is the way the authors have synthesized so many results by working with variants of simple models. It's the power of elegant simplicity. When looking at moral hazard for example, they start with the simplest two outcome, two action problem, with a risk-neutral principal and agent. Then they slowly and selectively complicate the same base model (e.g. adding a limited liability constraint, making the agent risk averse, allowing for more action levels and outcomes, adding more tasks, more agents, etc). Hence you get the essential insights without being overly burdened from the start with cumbersome notation. They have several nice graphical representations to accompany the very well written intuitive explanations. The end result is that you end up seeing with clarity how many results in the literature, that had previously seemed disparate, tie together very neatly and share a common mathematical structure.
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Format: Paperback
The book provides a systhesis of contract theory at the phd level. It begins with basic idea of adverse selection and then its extension and followed by basic moral hazard model and its extension. The selected topics are presented here in a consistent fashion of the main ideas. Applications are well presented along the models.
Nonverifiability, the mixed model of adverse selection and moral hazard and some dynamic aspects of the two are also incorporated in a great deal of details.
This is the text on incentive theory, not just introduction. Its comprehensive insights are useful and time-saving for readers. You need not to read a bulk of papers, after reading the book, you just complement it with some core papers of the topics. (such as multidimensional screening, random participation)
If there is some weakness, it would be that... the authors present some topics too short and some notation used are not well explained, particularly the extension of the core models and some selected topics.
Anyways, i found it helpful and complete for studying incentive theory but it requires deep understanding of optimization theory and some experience of economic-theorethic arguments.
This book is written by a major contributor of the field. It would be hard to write another book to compete with this one in the field. . .
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Format: Paperback
For praise of this textbook, read the other reviews.

The reason 5 stars is not given, is primarily because I find the choice of notation extremely confusing. I just can't stand the overbar-underbar notation for distinguishing types, and I find no compelling reason to do so compared to subscript notation used in e.g. Bolton and Dewatripont - Contract Theory). The notation is survivable until there are 3 types where underbar, hat and overbar is used. I'm convinced the material would be easier to understand had the notation been more conventional.

Maybe I'm the only one who "read equations loud in my head"? At least for me, the incentive constraint for "type 2" is easier to grasp than the incentive constraint for "type underbar". The material is difficult enough as it is, don't make it harder by confusing notation!
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Format: Paperback
This book is tremendously well written. I had been struggling to acheive a full master on Theory of Incentives, The Principal-Agent model, and always reading well-referred books, but none succeeded to combine matematical rigor, simplicity and clearness as Laffon and Martimort. A must read book to anyone interested in this topic. I have read some criticism to their notation, but they are actually pretty standard in the IO literature and in contract theory as well. Laffont (The Source, in english), is indeed the best source. Congratulations to the authors.
The Theory of Incentives: The Principal-Agent Model
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This book rates 5 stars because it is suprisingly easy to read for such a heavy deep subject. The examples and qoutes are well place and very illustrative. I would very much recommend this book. The most outstanding aspect is the way it approaches the theories on a small scale and expands them incrementally to secure the readers understanding at each stage of the "flow".
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