Module Information
Course Delivery
Delivery Type | Delivery length / details |
---|---|
Lecture | 10 Hours. |
Seminars / Tutorials | 4 Hours. |
Assessment
Assessment Type | Assessment length / details | Proportion |
---|---|---|
Semester Exam | 1.5 Hours | 100% |
Supplementary Exam | 1.5 Hours | 100% |
Learning Outcomes
By the end of the module students should have an understanding of:
* The expected utility hypothesis of choice under uncertainty;
* The concept of "attitudes towards risk": risk aversion, risk indifference, risk loving;
* Asymmetric information and associated problems: market failure, adverse selection, signalling and moral hazard;
* How the problems of uncertainty and asymmetric information can combine to create inefficiencies in the financial markets, how do agents react to them, and the consequences for market outcomes.
Aims
This module extends the microeconomic analysis of choice covered in EC30230 to consider choice under conditions of uncertainty. We then develop the closely-related issue of asymmetric information and the related problems of market failure, adverse selection and moral hazard. Applications to the financial market are addressed in detail.
Brief description
In addition to attending lectures and tutorials, it is important that you spend an apporopriate amount of time in private study. Since this module constitutes one sixth of your workload for this semester, and assuming a 36 hour working week, you should expect to spend about 5 hours per week studying for this module, of which only 1.5 hours is formally timetabled.
Content
- Choice under Uncertainly
expected utility
risk preferences: risk aversion, risk loving, risk neutrlity
simple application: demand for insurance
- Markets with Asymmetric Information
market failure
moral hazard
screening
signalling
- Uncertainly and asymmetric information in financial markets
applications to corporate finance
macroeconomic applications
Reading List
Recommended TextBebczuk, R (2003) Asymmetric Information in Financial Markets Cambridge: Cambridge University Press Primo search Nicholson, W and Sneider, CM (1998) Microeconomic Theory: Basic Principles and Extensions 10th edition Mason OH: Thomson South-Western Primo search Supplementary Text
Eaton, BC, Eaton, DF and Allen, WA (2001) Microeconomics 5th edition Toronto: Prentice Hall Canada Primo search Varian, HR (2005) Intermediate Microeconomics 5th edition New York NY: W.W, Norton Primo search
Notes
This module is at CQFW Level 6