30460 - INCENTIVES DESIGN AND POLICY
Department of Economics
Course taught in English
Go to class group/s: 13
Course Director:
FAUSTO PANUNZI
FAUSTO PANUNZI
Suggested background knowledge
Students should be comfortable with basic calculus (constrained and unconstrained optimization) and with basic microeconomic principles such as preferences and utility, budget constraint, consumer surplus, producer surplus, choice under uncertainty, risk aversion and risk premium.
Mission & Content Summary
MISSION
The topic of the class is information and contract theory. Most economic transactions are characterized by asymmetric information and this feature has significant effects on economic efficiency. The course aims at reviewing and explaining the effects of adverse selection and moral hazard and how optimal contracts can mitigate their impact. Understanding the implications of asymmetric information on different markets, such as labor or financial markets, is an essential feature of an economics degree. The purpose of the course is to give an introduction to some of the main subjects in this field: risk sharing, moral hazard, adverse selection, mechanism design, incomplete contracts, and the theory of the firm.
CONTENT SUMMARY
- Adverse selection.
- The trade-off between rent extraction and efficiency.
- Moral hazard.
- The trade-off between insurance and incentives.
- Incomplete contracts and the theory of the firm.
- Regulation.
- Financial contracts.
Intended Learning Outcomes (ILO)
KNOWLEDGE AND UNDERSTANDING
At the end of the course student will be able to...
- Describe the main issues related to the presence of asymmetric information in markets and organizations.
- Illustrate the main trade-offs caused by the presence of moral hazard and adverse selection.
APPLYING KNOWLEDGE AND UNDERSTANDING
At the end of the course student will be able to...
- Understand the basic role of uncertainty and imperfect information in analysing economic incentives.
- Understand the working and applications of contract theory.
- Analyze the impact of asymmetric information in different markets.
- Apply the theory of optimal contracts to different topics.
Teaching methods
- Face-to-face lectures
- Exercises (exercises, database, software etc.)
DETAILS
There will be a few exercises solved in class by the TA to apply the concepts learned during the course.
Assessment methods
| Continuous assessment | Partial exams | General exam | |
|---|---|---|---|
|
x | x |
ATTENDING AND NOT ATTENDING STUDENTS
- Students’ assessment is based on a written exam that consists of exercises and open questions aimed to assess students’ ability to apply the analytical tools illustrated during the course, to solve and explain models of asymmetric information as well as to find optimal incentive schemes.
- Students can take a partial written exam and complete the written exam at the end of the course. In this case the weight is: 50% for the partial exam and 50% for the end of term exam. Alternatively, students can take a final written exam that accounts for 100% of the final grade.
Teaching materials
ATTENDING AND NOT ATTENDING STUDENTS
The reading list are communicated to students at the beginning of the course.
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