Two papers on contract theory written by Columbia university economist W. Bentley MacLeod are superbly worthy of reading. One of them deals with the choice of formal or informal enforcement mechanisms when buyers hope to assure that the seller, who is to decide the quality of the good, would provide an efficient level of quality. Testable hypothses are also generated for further empirical studies. This paper has already been published in the latest issue of the Journal of Economic Literature. (Here for non-subscribers)
Another paper, which was actually presented at the AEA Annual Meeting this January, shows that established frameworks of contract theory can be used to provide a foundation for behavioral economics theories, like fairness and reciprocity. I've been thinking of incorporating behavioral elements into the ongoing framework of contract theory all the time, like Oliver Hart and John Moore's introduction of short-term commitment in justifying the desirability of ex post renegotiation of incomplete contracts and the concept of retaliation in their recent work of Contracts as Reference Points. So, indeed for me, professor Bentley MacLeod's paper is fresh and innovative. (Here for AER version.)
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