- enable students to identify real life situations where the studied concepts (adverse selection and moral hazard) are applicable;
- describe main trade-offs the principal is facing when designing an optimal contract
- make sure students understand books and papers that contain economic theories based on studied concepts
- enable students to solve models with a given setup related to studied concepts
- identify and solve models that are based on adverse selection
- Explain the main tradeoffs in models with moral hazard.
- solve special cases (binary model, linear model)
- Identify adverse selection and moral hazard in advanced models, be able to solve simple cases
- Apply deferred acceptance algorithm to one-to-one matching problems.
- Adverse selectionScreening model with two types. Application to the seller-buyer, lender-borrower, employer-employee. Extensions: ex ante contracting, limited liability, different outside options, optimal income taxation.
- Moral hazardSimple model with binary outcome and binary action. Linear contracts. Multitasking
- Advanced topicsMoral hazard in teams. Career concerns. Relational contracts.
- Matching theoryDeferred acceptance algorithm. Lattice structure of stable matchings. Strategy-proofness: impossibility result. Many-to-one matching.
- Cvitanić, J., & Zhang, J. (2013). Contract Theory in Continuous-Time Models. Berlin: Springer. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=533539
- Microeconomic theory, Mas-Colell A., Whinston M. D., 1995