Note: This is a preliminary draft of the syllabus. Later, I will hand out and post the official version of the syllabus (much more detailed than this draft) including all of the policies and the exact exam dates. 

Note: Knowledge of intermediate microeconomics and calculus is indispensable for this course; hence, it will be assumed. Moreover, basic statistics may be used throughout the course.

A basic knowledge of Economics of information is a fundamental component of the tool kit of any economist and finance professional. This course is appealing to both Economics and Finance students, especially those ones who plan on pursuing graduate programs in Economics or Finance. This is a theoretical course and the material covered is intellectually challenging and stimulating. Yet, the theory developed is applicable to many contexts. This course provides an introduction to a variety of issues that fall under the general heading of the economics of information and uncertainty. In this class, we will study the equilibrium and efficiency properties of markets in which there are information frictions, in the sense that market participants have limited information regarding the quality and price of various goods. This course introduces students to a range of economic tools and concepts used to study models explicitly involving economic agents with incomplete and asymmetric information. Consider a situation in which two (or more) agents are involved in a mutual agreement. It is very often the case that one economic agent has more information than the other about a characteristic that is relevant to the agreement. In this course, we will study how agents deal with this information asymmetry by designing incentives and embedding them in contracts. We will show that realistic information frictions can provide a simple and natural explanation for credit rationing, wage inequality, as well as for other phenomena that cannot be understood if there is full information. Moreover, we will show that, once information frictions are taken into account, the market allocation need not be efficient and appropriate government interventions (or market responses) may lead to welfare gains.

Summary: Adverse selection (hidden type models) and market responses to adverse selection: signalling, screening. Moral hazard (hidden action models) and incentive contracting (principal-agent models). Applications of the theory include market for insurance, labor market, credit market and credit rationing, price discrimination. Applications of the principal-agent model include the employer-employee relationship, the owner-manager relationship, medical doctor-patient relationship, and many other everyday life situations (asymmetric information is pervasive).

Firstly, the objective is that students develop analytical skills and learn to work with simple yet formal economic models. Students will develop the ability to model simple economic phenomena using elementary math. In addition,

·       Students will learn to formalize and analyze models involving asymmetric information and to use these models to explain a variety of economic phenomena that cannot be understood using full information models.

·       Students will learn to formalize and analyze realistic, incompletely specified problems of the sort that confront consultants, managers, policy makers, entrepreneurs and others.

Given the nature of the subject matter, the aim of the course, since the course readings will be based mainly on journal articles (and lecture notes posted by the instructor) and the Professor's lectures, if you do not attend classes, you get lost and struggle. Therefore, I will take attendance. 



EXAMS AND POLICY ON ABSENCES: At the beginning of the semester, I will post on MyJCU and circulate the official version of the syllabus with the exact exam dates. There are NO make-up for missed exams. If, for any compelling reasons (e.g., you are sick), you happen to miss a midterm exam, I want you to notify me ahead of time (if possible) and I would surely ask you to provide me with a formal and valid justification for the absence (you have to prove your claim about the cause of the absence). If I deem the justification is formal and merits consideration, then I would let you take a make-up exam.