Microeconomics I
Universitat Pompeu Fabra, Academic year 1998/99
Antonio Cabrales and Nir Dagan
[Contact information]
Homework assignments
Introduction
- Grading
- Weekly problem sets (10%).
Midterm exam (30%).
Final Exam (60%).
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
- Inés Macho Stadler and David Perez Castrillo, Introducción a la Economía de la
Información, Editorial Ariel Economía, 1994.
Other recommended readings
- D.M. Kreps, Curso de Teoría Microeconómica, McGraw-Hill, 1995.
- B. Salanie, The Economics of Contracts. A Primer, MIT Press, 1997.
- P. Milgrom and J. Roberts, Economía, Organización y Administración de Empresas,
Ariel, 1993.
- E. Rasmusen, Juegos e información. Introducción a la Teoría de Juegos,
McGraw Hill, 1995.
- J.J. Laffont, The Economics of Uncertainty and Information, MIT Press, 1989.
- J. Hirshleifer and J.G. Riley, The Analytics of Uncertainty and Information, Cambridge
University Press, 1992.
- A. Dixit and B. Nalebuff, Pensar Estratégicamente, A. Bosch ed. 1992.
Outline
- 1. Introduction to the economics of information
- The basics of the problem, the development of the interaction over time, and a
classification of problems with asymmetric information.
- 2. The benchmark model: contracts with complete information
- Optimal payment mechanism and the optimal level of effort.
- 3. The moral hazard problem (I).
- The case of two possible effort levels and its solution. A simple
example with a continuum of possible effort levels.
- 4. The moral hazard problem (II): Extensions and applications.
- Moral hazard and credit markets.
- 5. The adverse selection problem (I).
- Comparison with the benchmark case. The model with two types and with a
continuum of types.
- 6. The adverse selection problem (II): applications.
- Competition in insurance market, optimal licencing, and government
regulation.
- 7. Signalling (I).
- The value of private information and signalling.
Separating and pooling equilibria.
- 8. Signalling (II): applications.
- Prices as a quality signal, the level of debt as a signal
of a firm's value.