= Holmström's theorem
{wiki=Holmström's_theorem}
Holmström's theorem, named after the economist Bengt Holmström, is a result in the field of contract theory. It revolves around the design of contracts in situations where there is asymmetric information, specifically regarding effort or actions taken by agents that cannot be perfectly observed by the principal. The key insights from Holmström's theorem are: 1. **Incentive Compatibility**: The theorem underscores the importance of designing contracts that provide the right incentives for agents (e.g.
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