Contract Theory

CORE DEFINITION

A theory that studies how to design optimal contracts under conditions of information asymmetry, including issues such as moral hazard, adverse selection, and signaling, aiming to coordinate conflicts of interest between principals and agents through contract design. Scaffolding role: guidance for institutional design. It provides a theoretical framework for understanding contract incompleteness and its economic consequences. In practice, it supports solving agency problems by designing reasonable incentive mechanisms, risk-sharing mechanisms, and information disclosure systems, and is widely applied in fields such as corporate governance, insurance, and labor contracts.