Module Information

Module Identifier
EC30610
Module Title
UNCERTAINTY AND ASYMMETRIC INFORMATION
Academic Year
2008/2009
Co-ordinator
Professor Peter R Midmore
Semester
Semester 2
Pre-Requisite
EC30220
Other Staff
 

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

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 List

Recommended Text
Bebczuk, 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