28904 - Microeconomics 3

Learning outcomes

At the end of the class, the student has acquired knowledge at the advanced level of the main results and analytical methods of microeconomics. In particular, student is able to: - Solve the canonical optimization problems used in microeconomics (with a finite number of variables) - Analyze the comparative statistics of these problems - Understand the basic logical structure of the proofs of existence and Pareto efficiency for pure exchange economies.

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. Moral-hazard and multi-tasking.
2. Adverse selection in the principal-agent model and the Revelation Principle.
3. Multiple dimensions of adverse selection in markets and in the principal-agent model.
4. Competition between principals: agency models with adverse selection.
5. Multiple dimensions of adverse selection and competition between principal: random participation versus bidimensional screening.
6. Applications, such as moral hazard and adverse selection in insurance markets.

Readings/Bibliography

JJ Laffont and D Martimort (2002), "The Theory of Incentives: The Principal-Agent Model". Princeton University Press.

Teaching materials provided by the lecturer.

Teaching methods

Lectures and students' presentations

Assessment methods

Students will be asked to present a paper in class and to prepare a short essay (3/5 pages).

In particular:

1) for their presentation, students will choose one paper from a list of relevant studies (that will include student's suggestions)

2) for their essay, students will choose whether

2a) to write the essay on a second paper appearing in the list

or

2b) to prepare a research proposal on a topic that can be analyzed using tools presented in the course

Teaching tools

Slides prepared by the teacher

Office hours

See the website of Francesca Barigozzi