Module Identifier |
EC30610 |
Module Title |
UNCERTAINTY AND ASYMMETRIC INFORMATION |
Academic Year |
2004/2005 |
Co-ordinator |
Mr Roberto Bonilla |
Semester |
Semester 2 |
Pre-Requisite |
EC30230 |
Course delivery |
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
The module consists of 12 lectures plus 4 classes per student. Classes will be based on the assignments distributed in lectures. The opportunity to write and receive comments on a voluntary, non-assessed essay will also be offered. Essay titles will be distributed during lectures.
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
lotteries
expected utility
risk preferences: risk aversion, risk loving, risk neutrlity
simple application: demand for insurance
Markets with Asymmetric Information
adverse selection
market failure
moral hazard
screening
signalling
Uncertainly and asymmetric information in financial markets
asymmetric information problems in financial markets and protection mechanisms
applications to corporate finance
macroeconomic applications
Reading Lists
s
Nicholson, W (1992) Microeconomic Theory: basic principles and extensions
Dryden Press
Books
** Recommended Text
Bebczuk, R (2003) Asymmetric Information in Financial Markets
Cambridge University Press
Pindyck, R and D Rubinfeld (1992) Microeconomics
Maxwell Macmilland International
Varian Hall (1993) Intermediate Microeconomics
W W Norton
** Supplementary Text
Eaton, B C, Eaton D F and W A Douglas (1999) Microeconomics
Prentice Hall Canada
Katz, M L and H R Rosen (1998) Microeconomics
McGraww-Hill
Notes
This module is at CQFW Level 6