Carnegie Mellon University

Accounting & Information Economics II

Course Number: 47719

This course covers the main applications of contract theory and information economics, focusing on the business fields of accounting and finance. We start with two essential information-based economic problems moral hazard and adverse selection respectively and focus on how contracts are designed to address trade-offs the problems induce. After this general introduction, we explore applied problems which have their roots in these two basic problems. Examples are (1) incentive cost and debt contracting in corporate finance, (2) monitoring incentives in teamwork; (3) capital budgeting and communication in decentralized organizations.

Degree: PhD
Concentration: Accounting
Academic Year: 2023-2024
Semester(s): Mini 2
Required/Elective: Elective
Units: 6


Lecture: 100min/wk and Recitation: 50min/wk


  • Consulting textbook is: Laffont, Jean-Jacques, and David Martimort. The theory of incentives: the principal-agent model Princeton university press, 2009.
  • Select chapters from a manuscript prepared by the instructor.

Learning Objectives

Identify fundamental trade-offs (moral hazard, adverse selection, etc.) in applied accounting and finance settings. Improve ability in understanding the modeling and resolution these trade-offs in existing academic work Create, solve, and analyze simple illustrate models of moral hazard and adverse selection.