Micro II

II Term January - March

Microeconomics II (Prof. Riccardo Martina - Prof. Giovanni Immordino)

The course will focus on Economics of information. One economic agent has often more information about a characteristic that is relevant to an 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 studyu the effects of information asymmetry on the prevailing market equilibrium. Applications of the theory include insurance, labour economics, industrial economics.

By the end of the module, students should be familiar with the different types of information asymmetries and their consequences in contract design and market equilibrium and should be able to solve principal-agent models using appropriate mathematical tecniques.

Topics:

Introduction
The types of asymmetric information
The basic principal agent model; Description of the model; Symmetric information contracts
The moral hazard problem; The case when the agent chooses between two effort levels; Continuous effort; Applications
The adverse selction problem; A model for one principal and one agent; When principals compete for agents; Applications

Bibliography:

Bolton, P and Dewatripont, M "Contract Theory", The MIT Press, 2005
Macho-Stadler, I and Perez-Castrillo, J.D "An introduction to the Economics of Information Incentives and Contracts", Oxford University Press, 2001
Salanie, B. "The Economics of Contracts" MIT Press, 2005.