Question

short contract theory

Answer 1

Contract Theory
What is 'Contract Theory'
Contract theory is the study of the way people and organizations construct and develop legal agreements. It analyzes how parties with conflicting interests build formal and informal contracts. The theory investigates the formation of contracts in the presence of asymmetric information. Contract theory draws upon principles of financial and economic behavior as different parties have different incentives to perform or not perform particular actions.
According to contract theory, contracts exist to distinguish what the principal expects to happen and what will happen. It provides a clear and specific understanding and agreement of the positions and duties of the interested parties. Contract theory also covers the implied trust between the parties, and that all the constructed representations are valid and will be followed. One of the most prominent applications of contract theory is how to design employee benefits optimally.

During the 1960s, Kenneth Arrow conducted the first formal research on this topic in the field of economics. Since contract theory incorporates both behavioral incentives of a principal and an agent, it falls under a field known as law and economics. This field of study is also called the economic analysis of law.

Answer 2

Contract theory is the study of the way people and organizations construct and develop legal agreements. ... Contract theory draws upon principles of financial and economic behavior as different parties have different incentives to perform or not perform particular actions.