ENSAE Paris - École d'ingénieurs pour l'économie, la data science, la finance et l'actuariat

Business Economics, Organization and Incentives



Département : Economics


The first part of the course will focus on basic building blocks in the theory of contracts and incentives, with applications to the firm, organizations and labor contracts. The second part of the course will be devoted to the study of recent empirical work on organization and incentives in private and public firms, with an emphasis on the organization of teams. Students will present the proposed papers orally during the course (in English). Papers will be discussed during the class.


Chapter 1. The Principal-Agent Model under Pure Moral Hazard
Risk-sharing and Incentives — Grossman and Hart’s model — The Multitask Agent Problem.

Chapter 2. Incentives in Teams
Moral Hazard in Teams: Coordination and Authority — Teams with Incomplete Information — Yardstick Competition — Tournaments.

Chapter 3. The Principal-Agent Problem under Pure Adverse Selection
Notion of Mechanism — Nash Implementation — Revelation Principle — Informational Rents and Second-best — Baron and Myerson’s Model.

Chapter 4. Introduction to Dynamic Problems
Implicit or Self-enforcing Contracts — Efficiency Wages — Promotions and Hierarchies — Implicit and Explicit Incentives — Relational Contracts.

Chapter 5. Strawberry Fields
Oriana Bandiera, Iwan Barankay and Imran Rasul (2005), “Social Preferences and the Response to Incentives: Evidence from Personnel Data”, Quarterly Journal of Economics, 120(3), p 917-962.
Oriana Bandiera, Iwan Barankay and Imran Rasul (2009), “Social Connections and Incentives in the Workplace: Evidence from Personnel Data”, Econometrica, 77(4), p 1047-1094.

Chapter 6. Further Experiments in the Field and in the Lab: Team Incentives
Guido Friebel, Matthias Heinz, Miriam Krueger and Nikolay Zubanov (2017), “Team Incentives and Performance: Evidence from a Retail Chain”, American Economic Review, 107(8), p 2168-2203.
Ben Weidman and David J. Deming (2021), “Team Players: How Social Skills Improve Team Performance”, Econometrica, 89(6), p 2637-2658.

Chapter 7. Organization and Individual Effort: Doctors and Nurses
David C. Chan (2016), “Teamwork and Moral Hazard: Evidence from the Emergency Department”, Journal of Political Economy, 124(3), p 734-770.
Ann P. Bartel, Nancy D. Beaulieu, Ciaran S. Phibbs and Patricia W. Stone (2014), “Human Capital and Productivity in a Team Environment: Evidence from the Healthcare Sector”, American Economic Journal: Applied Economics, 6(2), p 231-259.

Chapter 8. Peers
Alexander Mas and Enrico Moretti (2009), “Peers at Work”, American Economic Review, 99(1), p 112-145.
Tomas Cornelissen, Christian Dustmann and Uta Schönberg (2017), “Peer Effects in the Workplace”, American Economic Review, 107(2), p 425-456.



Patrick Bolton and Mathias Dewatripont (2004), Contract Theory, MIT Press, Cambridge, Mass.
Jean-Jacques Laffont and David Martimort (2001), The Theory and Incentives, Princeton University Press, Princeton.
Edward P. Lazear (1995), Personnel Economics, MIT Press, Cambridge, Massachusetts.
Bernard Salanié (2005), The Economics of Contracts: a Primer, new edition, MIT Press.

Some Articles on Contracts and Incentives
Baker, George, Gibbons, Robert and Kevin J. Murphy (1994), “Subjective Performance Measures in Optimal Incentive Contracts,” Quarterly Journal of Economics, 109, 1125-1156.
Baron, David P. and Roger B. Myerson (1982), “Regulating a Monopolist with Unknown Costs,” Econometrica, 50, 911-930.
Benabou, Roland and Jean Tirole (2016), “Bonus Culture: Competitive Pay, Screening, and Multitasking”, Journal of Political Economy, 124(2), 305-370.
Gibbons, Robert and Kevin Murphy (1992), “Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence,” Journal of Political Economy, 100, 468-505.
Grossman, Sanford and Oliver D. Hart (1983), “An Analysis of the Principal-Agent Problem”, Econometrica, 51(1), 7-45.
Holmström, Bengt (1982), “Moral Hazard in Teams,” Bell Journal of Economics, Autumn,
13, 324-340.
Holmström, Bengt (1999), “Managerial Incentive Problems: A Dynamic Perspective,”
Review of Economic Studies, Special Issue: Contracts, 66, 169-182.
Holmström, Bengt and Paul Milgrom (1991), “Multitask Principal-Agent Analyses: Incentive Contracts, Asset Ownership and Job Design,” Journal of Law, Economics and Organization, supplement 1991, 7, 24-52.
Ke, Rongzhu, Li, Jin and Michael Powell (2018), “Managing Careers in Organizations”,
Journal of Labor Economics, 36(1), 197-252.
Laffont, Jean-Jacques and Jean Tirole (1986), “Using Cost Observation to Regulate Firms,”
Journal of Political Economy, 94, 614-664.
Lazear, Edward P. and Sherwin Rosen (1981), “Rank-Order Tournaments as Optimum Labor Contracts,” Journal of Political Economy, 89, 841-864.
Levin, Jonathan (2003), “Relational Incentive Contracts”, American Economic Review, vol. 93, p 835-857.
MacLeod, W. Bentley and James M. Malcomson (1998), “Motivation and Markets”, American Economic Review, 88, pp 388-411.
Shapiro, Carl and Joseph E. Stiglitz (1984), “Equilibrium Unemployment as a Worker Discipline Device,” American Economic Review, 74, 433-444.