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Description
Aims: One often encounters situations in which two agents are involved in a mutual agreement. Invariably, one economic agent has more information about a characteristic that is relevant to the agreement, than the other. In this module, we will study how agents deal with this information asymmetry by designing incentives and embedding them in contracts. We will also study the effects of information asymmetry on the prevailing market equilibrium. Applications of the theory include insurance, labour economics, industrial economics, and environmental economics.
Suitable for: Final year Economics (L100 / L101 / L102), Econ/Stats (LG13), and Math/Econ (G1L1/G1LC) students.
Prerequisites: ECON0013: Microeconomics, and ECON0019: Quantitative Economics and Econometrics or equivalents.听
Assumed knowledge: Students coming into the module should understand concepts of supply and demand and partial equilibrium, Pareto efficiency in an exchange economy (in an Edgeworth box), and should have basic knowledge of decision making under uncertainty, expected utility, and risk aversion. The module makes use of Lagrangians to solve constrained optimization problems with inequality constraints. If time permits, the course also discusses empirical studies, students need to be familiar with linear regression, and probit to understand these studies. Generally, students are expected to derive results formally in problem sets, students whose prior experience is focussed on verbal discussions will have to put in extra effort to get used to this.
Module deliveries for 2024/25 academic year
Last updated
This module description was last updated on 19th August 2024.
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