90296 - Information Economics

Academic Year 2021/2022

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 in agency models with adverse selection: random participation versus bidimensional screening.

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.
- 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).

Teaching materials provided by the lecturer.

Teaching methods

Lectures and students' presentations

Assessment methods

A class presentation and a written exam (accounting for 50% of the mark each). 

The class presentation can be a solo presentation or can be organized in a self-arranged group of two people.

In case the student decides to opt for an online exam, the written part of the exam will be converted in an oral exam.

Grades are assigned as follows:

- <18: failed
- 18-23: sufficient
- 24-27: good
- 28-30: very good
- 30 Lode: excellent.

Teaching tools

Slides prepared by the instructor

Links to further information

https://sites.google.com/site/francescabarigozziunibo/teaching/information-economics?authuser=0

Office hours

See the website of Francesca Barigozzi