Economics of Information

Recommended Prerequisites

Basic knowledge of Microeconomics and Game Theory.

Teaching Methods

The classes start with the basic concepts, and then move on to applications and problems. The key concepts are initially presented in an intuitive way, and then mathematical models are used in order to allow a formal analysis. Students are encouraged to be active participants in the class, applying common sense and mathematical models to the analysis of different problems. Some simulations of asymmetric information situations will be performed in the classes, in order to provide the students a deeper understanding of the concepts, by applying them directly.

Learning Outcomes

Students should be able to:

• understand the concepts of information and value of information, as well as the different aspects of information;

• identify the main categories of asymmetric information models;

• identify moral hazard and adverse selection situations;

• understand asymmetric information models applied to different real world situations;

•   calculate optimal contracts in different situations;

• identify the optimal bargaining strategies in some simple cases;

• identify different types of auctions, and the way they influence the expected outcome for the seller;

•   identify the optimal buyer strategies in different types of auctions.

Work Placement(s)

No

Syllabus

Overview of game theory. The concept of information, the different aspects of information and the value of information. Categories of asymmetric information models. Moral hazard. Adverse selection. Signalling and screening. Applied models of asymmetric information: second-hand goods, contracts, insurance. Bargaining. Auctions.

Assessment Methods

Assessment
Periodic or by final exam as given in the course information: 100.0%

Bibliography

BIRCHLER, Butler – Information economics. London : Routledge, 2009.

BOLTON, Dewatripont – Contract theory. Cambridge, Mass. : MIT Press, 2005.

CAPMBELL – Incentives: motivation and the economics of information. 3rd ed. Cambridge : Cambridge University Press, 2018.

KRISHNA – Auction theory .2nd ed. Amsterdam : Academic Press, 2010.

RASMUSEN – Games and information. 4th ed. Cambridge : Blackwell Publishing, 2007.