Economics 20600.
Economics of Information

Course description

This course begins with a short introduction to the theory of decisions under uncertainty, including risk aversion and optimal risk sharing. Then the main focus of the course is on the problems of economic transactions when people have different information, including moral-hazard and adverse-selection problems in optimal principal-agent contracts. Mathematical models are emphasized throughout the course.

Course requirements

Students will be asked to do regular problems sets, a midterm exam (Nov 8, bring a hand calculator), and a final exam (take-home Nov 29-30).

Fall 2007: Tue, Thurs 12:00-1:20pm, in Ro 011. Discussions Tue 6:00pm in Cobb 110.

Instructor: Roger Myerson (office hours Wed 9:30–12:00 and by appointment). TA: Adam Clemens (aclemensAt).


Jean-Jacques Laffont and David Martimort, Theory of Incentives, Princeton (2001) [LM].

Other References

  • R. Myerson, Probability Models for Economic Decisions, Duxbury (2004).
  • G. Jehle and P. Reny Advanced Microeconomic Theory (2001).
  • A. Mas-Colell, M. Whinston, J. Green, Microeconomic Theory (1995).
  • (Introductions to constrained optimization in MWG appendix M.K, JR appendix A2.3.)

Course Outline

  1. Utility theory, optimal risk sharing, conditional expectation [util206.xls]
  2. Adverse selection and informational incentive constraints [LM ch 2 and pp 134-140] notes,
  3. Moral hazard and strategic incentive constraints [LM ch 4] notes, homework, [ec206hwk4q3b.xls]