LAW 900

Contract Design


Business & Tax Law

The course Contract Design aims to bridge the gap between economic contract theory, contract law, and the writing of real-world contracts. In this course, we take a systematic approach to contract design. We first analyze the economic environment in which a transaction takes place, and then devise contracts that achieve the desired outcome. Note that this is NOT a legal drafting class that focuses on contractual language. Instead, in Contract Design, you will learn what the content of a contract should be so that parties can reach their goals.

Contracts are agreements between parties to engage in transactions. A good contract creates value by giving parties the right incentives to meet their objectives. A good contract designer scrutinizes the economic situation in which parties find themselves and tailors the contract to the challenges at hand. To help you become sophisticated contract designers, we draw from theoretical insights, for which more than half a dozen Nobel Prizes were awarded in the past two decades, and transfer them to the art of writing real-world contracts. Put differently, Contract Design will provide you with analytical tools for contracting that are invaluable to successful lawyers, business leaders, or other professionals involved in dealmaking.

In Contract Design, you will watch a series of videos (10-15 minutes each) that we produced for this course. These video episodes introduce you to key concepts of economic contract theory, ranging from classic insights from game theory to modern findings from behavioral and experimental economics. Topics such as moral hazard, adverse selection, elicitation mechanisms, relationship-specific investments, and relational contracting are covered. You can find the welcome video at this link. However, this course prioritizes applications of contract design. Therefore, we will use class time to discuss a selection of real-world case studies, ranging from purchases & sales of assets, oil & gas exploration, movie production & distribution, construction & development, M&A deals, to executive compensation and many other types of transactions.

In addition to watching the videos, you will perform the following tasks in this course: 1) You will take computer-based quizzes that prepare you for class. 2) You will write short responses to questions on case studies we will discuss in class. 3) You will  prepare a group presentation where you will take the role of consultants advising a company board regarding the contract design in an upcoming major transaction. Your final grade (pass/fail) is determined by your results on these assignments. Moreover, we encourage you to actively participate in the lectures – this is not going to affect your grade but will improve your learning experience.

If you have any questions about this course, please send an e-mail to Professor Stremitzer’s Teaching Assistant Vincent Casty (vincent.casty@gess.ethz.ch).

Students may want to view this video clip that describes the class in more detail. 

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