MICROECONOMICS 2

This is a core course that completes the advanced study of economics within the QEM Master by providing knowledge and competences to deal with complex issues in microeconomics. It has two parts: the first part provides a graduate-level introduction to formal strategic reasoning. The ability to represent and reason about strategic interaction is a fundamental component for the analysis and study of behaviour in situations of competition or cooperation. The second part introduces the theory of information in the economics context: it present models of decision under uncertainty and it explains the value of information in economics.
This course provides both an introduction to game theory, viewed as the scientific language to deal with strategic interaction and a representation of the theory of insurance, the theory of agency, the problems of adverse selection and moral hazard. Differently from a university-wide policy that equates 1 ECTS with 3.75 actual hours of frontal instruction, this 7-ECTS course equates 1 ECTS with 6.43 actual hours of frontal instruction.

a) Knowledge and understanding:
a.1) Ability to build formal models of strategic interactions.
a.2) Ability to discern (iteratively) dominated strategies.
a.3) Ability to conceptualise randomisation in strategic play.
a.4) Ability to build formal models of choices under uncertainty
a.5) Ability to conceptualise the role of information in economics


b) Applying knowledge and understanding:
b.1) Ability to compute different kinds of equilibria.
b.2) Ability to build formal models for strategic interactions.
b.3) Ability to handle randomisation in strategic play.
b.4) Ability to compute optimal solutions under uncertainty.
b.5) Ability to build formal models of equilibrium under different market structures.

c) Making judgements
c.1) Ability to detect and discuss trade-offs in strategic choices.
c.2) Ability to rank the plausibility of different predictions about strategic interactions.
c.3) Ability to detect and discuss trade-offs in the context of risk and the context of markets affected by asymmetric information.


d) Lifelong learning skills
d.1) Ability to reframe issues in terms of the opponents' viewpoint.
d.2) Ability to elaborate issues in terms different starting assumptions.
d.3) Ability to make use of new tools and adapt competences.

This course places the emphasis both on the formal representation of economic issues and on applications of the theory. There are no formal prerequisites, but successful completion of standard undergraduate course in microeconomics, optimisation and probability is highly recommended.

Students are required to be familiar with standard material in analysis and probability at the level of the mathematical appendix in Jehle and Reny (2011), Advanced Microeconomic Theory, third edition. No previous formal knowledge of game theory is required, although familiarity with simple examples such as the Prisoners' Dilemma or the Battle of Sexes is assumed. No previous formal knowledge of choices under uncertainty or of information economics is required though students might already know concepts such as “expected utility”. Specific economic situations where these concepts are relevant will be taken as examples.

Part 1.
1. Strategic dominance.
2. Nash equilibrium.
3. Mixed strategies.
4. Backward Induction.
5. Alternating-offer bargaining.
6. Subgame perfect equilibrium.
7. Repeated games.
8. Incomplete information.
9. Auctions.
10. Perfect Bayesian equilibrium and refinements
11. Risk dominance.
12. Evolutionary stability.

Part 2
13. The role of information in economics.
14. Decision making under uncertainty.
15. The expected utility model, risk aversion, risk premium, the structure and value of information.
16. Contingent markets and insurance: The case of symmetric information
17. The role of insurance and risk sharing.
18. State-space representation.
19. Asymmetric information and incentives.
20 The revelation principle. Adverse selection. The market of lemons.
21 Optimal contracts, signalling and screening, adverse selection in insurance markets.
22. Moral hazard. The standard principal-agent problem, moral hazard and insurance.

T. Fujiwara-Greve (2015), Non-cooperative Game Theory, Springer.
G.A. Jehle and P. Reny (2011), Advanced Microeconomic Theory, third edition, Prentice-Hall.
Mas-Colell, A., Whinston, M.D., Green, J.R. (1995). Microeconomic Theory. Oxford University Press.
Salanié, B. (2005). The Economics of Contracts. MIT Press.

A detailed timeline of the lectures containing sections/chapters of the above textbooks will be provided at the beginning of the lectures and in the dedicated websites

Grading is based on a final written exam. This consists of at least four (possibly, more) questions, each with its own score. At least 20 points (out of 32) are amenable to (possibly, variations on the) questions taken from the textbook and listed in a Study Guide made available during the course.

The exam is closed-notes and closed-book, but you are allowed to use a pocket calculator and two sides of an A4-sheet prepared by you at home. Failing to register for the exam is sufficient cause for denying admission.

Lectures and practice sessions.

Inglese

For more information and updates, trust only the class webpage: http://virgo.unive.it/licalzi/micro2.html and the dedicated moodle platform

Ca’ Foscari applica la Legge Italiana (Legge 17/1999; Legge 170/2010) per i servizi di supporto e di accomodamento disponibili agli studenti con disabilità o con disturbi specifici dell’apprendimento. Se hai una disabilità motoria, visiva, dell’udito o altre disabilità (Legge 17/1999) o un disturbo specifico dell’apprendimento (Legge 170/2010) e richiedi supporto (assistenza in aula, ausili tecnologici per lo svolgimento di esami o esami individualizzati, materiale in formato accessibile, recupero appunti, tutorato specialistico a supporto dello studio, interpreti o altro) contatta l’ufficio Disabilità e DSA disabilita@unive.it.

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