28904 - Microeconomics 3

Academic Year 2019/2020

  • Teaching Mode: Traditional lectures
  • Campus: Bologna
  • Corso: Second cycle degree programme (LM) in Economics (cod. 8408)

Learning outcomes

At the end of the class, the student has a working knowledge of the basic tools and results derived in Information Economics. Specifically, the student is able to analyze - adverse selection in markets and its possible remedies - adverse selection and moral-hazard in the Principal-Agent model

Course contents

This is a course in Contract theory providing both introductory and advanced material about incentives with asymmetric information. The course will cover both hidden information problem (adverse selection) and hidden actions problems (moral hazard). The perspective is that of optimal contract design in presence of conflicting interests between parties (the contract designer, i.e. the principal, and the delegated agent).

  1. Introduction to the economics of information.
  2. Markets under adverse selection (the market for lemons).
  3. Signaling and screening.
  4. The theory of optimal risk-sharing.
  5. The principal-agent problem. Contracts under moral hazard.
  6. Adverse selection in the principal-agent model and the Revelation Principle.
  7. Multiple dimensions of adverse selection in markets and in the principal-agent model.
  8. Competition between principals: agency models with adverse selection.
  9. Multiple dimensions of adverse selection and competition between principals: random participation versus bidimensional screening.
  10. Applications, such as moral hazard and adverse selection in insurance markets.

Readings/Bibliography

- The market for lemons, signaling and screening: A.Mas-Colell, M.Whinston and J. Green, Microeconomic Theory, Oxford University Press, 1995, chap 13.
- Optimal risk-sharing and moral hazard: Milgrom-Roberts, Economics Organization and Management, McGraw Hill, 1992, chaps.5 and 7.
- The Revelation Principle: Laffont, J.J. and D. Martimort, The Theory of Incentives: The Principal-Agent Model, Princeton University Press, 2001, chap 2.
- Adverse selection and moral-hazard in contracts theory: Bolton P. and M. Dewatripont, Contract Theory, The MIT Press, 2005, chaps 2 (sections 2.1 and 2.3.3) and 4 (sections 4.1 and 4.2).
- Games with incomplete information: Gibbons R., A primer in Game Theory, Prentice Hall, 1992, chaps 3 and 4.

Teaching materials provided by the lecturer.

Teaching methods

Lectures and students' presentations

Assessment methods

An assignment during the course, a class presentation and a written exam with open questions at the end of the course.

Teaching tools

Slides prepared by the teacher

Links to further information

https://sites.google.com/site/francescabarigozziunibo/teaching/microeconomics-3

Office hours

See the website of Francesca Barigozzi

SDGs

Industry, innovation and infrastructure Responsible consumption and production

This teaching activity contributes to the achievement of the Sustainable Development Goals of the UN 2030 Agenda.