Henriet and K. Schlubert eds. Martimort, ed. The Review of Economic Studies, , The American Economic Review,
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Reviews 3 Economics has much to do with incentives — not least, incentives to work hard, to produce quality products, to study, to invest, and to save. Although Adam Smith amply confirmed this more than two hundred years ago in his analysis of sharecropping contracts, only in recent decades has a theory begun to emerge to place the topic at the heart of economic thinking.
In this book, Jean-Jacques Laffont and David Martimort present the most thorough yet accessible introduction to incentives theory to date. Central to this theory is a simple question as pivotal to modern-day management as it is to economics research: What makes people act in a particular way in an economic or business situation?
How does the owner or manager of a firm align the objectives of its various members to maximize profits? Following a brief historical overview showing how the problem of incentives has come to the fore in the past two centuries, the authors devote the bulk of their work to exploring principal-agent models and various extensions thereof in light of three types of information problems: adverse selection, moral hazard, and non-verifiability.
He has won a number of prestigious awards for his research and is a former President of the European Economic Association and of the Econometric Society. 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.
It is indeed a fine contribution to the economics literature. 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.