Advanced Microeconomics

Module code: EC3000

Any economic decision involves a part of uncertainty.  Governments make policy decisions in a world where economic or sanitary crises are almost impossible to foresee.  Financial actors and insurers are essentially dealing with risks.  Employers cannot monitor the activity of their employees at no cost.  Banks and shareholders have no control over the choices of entrepreneurs and chief executive officers.  Choosing where to live, which flat to rent, which car to buy, which professional career to undertake, all these decisions are made with a certain degree of uncertainty, even small.

This module explores decision-making and economic outcomes in the presence of uncertainty, using modelling tools from modern economic theory.  The first part introduces students to decision-making when risks are taken into account. Students will become familiar to risk-mitigating strategies and how well-functioning financial and insurance markets can help.  The second part of the module introduces students to problems of asymmetric information, such as moral hazard and adverse selection.  Students will explore these problems using standard theoretical frameworks.

The module connects economic modelling to real-life applications such as microcredit, derivative financial products, health insurance or unemployment insurance.  The module also guides students to read works of influential economists such as Arrow, Akerlof, Banerjee, Duflo, Stiglitz or Tirole.

Topics covered:

• Decision-making under uncertainty
• Risk-mitigating strategies
• Problems of asymmetric information: moral hazard
• Problems of asymmetric information: adverse selection
• Applications to finance, economic development, health care, redistributive politics