30460 - INCENTIVES DESIGN AND POLICY

Prerequisites: 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.

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.

• Adverse selection.
• The trade off between rent extraction and efficieny.
• Moral hazard.
• The trade off between insurance and incentives.
• Incomplete contracts and the theory of the firm.
• Regulation.
• Financial contracts.

• 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.

• 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.

• Face-to-face lectures