Managerial Economics

Module code: EC3071

This module is mainly about incentive theory.  The two main parts are agency problem and adverse selection.  The former is about a context when an individual called principal hires another person called agent to accomplish a task.  The principal and the agent have conflicting objectives and, in the module, we will study how proper incentives are created for the agent so that the agent works in the best interests of the principal.  Adverse selection refers to a situation when in an interaction with two agents, one agent has more information and there is no credible way to verify the truthfulness of any communication from the informed person.  Using these two tools we will learn various applications e.g. how premiums are set by insurance companies, when does a seller offer warranty etc.