Microeconomics I
Universitat Pompeu Fabra
Antonio Cabrales
and Joel Shapiro [Contact:
joel.shapiro@econ.upf.es]
The
course's website in Spanish (maintained by Antonio Cabrales)
Homework assignments
There are 7 problem sets.
Class Notes
Lecture 1: Introduction and Benchmark Model
Lecture 2: Moral Hazard (Theory)
Lecture 3: Moral Hazard (Applications)
Lecture 4: Adverse Selection
Lecture 5: Signalling, Part I
Lecture 6: Signalling, Part II
Lecture 7: Regulation
Introduction
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Grading
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Weekly problem sets (-.5 for not handing in 5 out of 7 problem sets)
Final Exam
This course studies the relationships between economic agents when information
is imperfect and asymmetric. That is, when there is relevant information
not known to some of the decision makers.
The course concentrates on contract design in the presence of moral
hazard (One participant may take actions that affect both participants,
but these are not observed by the other participant); Adverse
selection (One participant has relevant information concerning the
pre existing situation, that may affect the payoffs of both); And signalling
(One of the participants has private information useful for both, but has
to take costly actions in order to reveal that information).
Major textbook
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Inés Macho Stadler and David Perez Castrillo, Introducción
a la Economía de la Información, Editorial Ariel Economía,
1994. (also available in English)
Other recommended readings
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D.M. Kreps, Curso de Teoría Microeconómica, McGraw-Hill,
1995.
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B. Salanie, The Economics of Contracts. A Primer, MIT Press, 1997.
[Buy
this book from Amazon.com]
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P. Milgrom and J. Roberts, Economía, Organización y Administración
de Empresas, Ariel, 1993.
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E. Rasmusen, Juegos e información. Introducción a la Teoría
de Juegos, McGraw Hill, 1995.
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J.J. Laffont, The Economics of Uncertainty and Information, MIT
Press, 1989. [Buy
this book from Amazon.com]
-
J. Hirshleifer and J.G. Riley, The Analytics of Uncertainty and Information,
Cambridge University Press, 1992. [Buy
this book from Amazon.com]
-
A. Dixit and B. Nalebuff, Pensar Estratégicamente, A. Bosch
ed. 1992.
Outline
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1. Introduction to the economics of information
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The basics of the problem, the development of the interaction over time,
and a classification of problems with asymmetric information.
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2. The benchmark model: contracts with complete information
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Optimal payment mechanism and the optimal level of effort.
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3. The moral hazard problem (I).
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The case of two possible effort levels and its solution. A simple example
with a continuum of possible effort levels.
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4. The moral hazard problem (II): Extensions and applications.
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Moral hazard and credit markets.
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5. The adverse selection problem (I).
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Comparison with the benchmark case. The model with two types and with a
continuum of types.
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6. The adverse selection problem (II): applications.
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Competition in insurance market, optimal licencing, and government regulation.
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7. Signalling (I).
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The value of private information and signalling. Separating and pooling
equilibria.
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8. Signalling (II): applications.
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Prices as a quality signal, the level of debt as a signal of a firm's value.
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