Ateneo - UPO

The module of Information Economics aims at presenting, first, basic microeconomics tools for the analysis of financial markets when markets are complete vs incomplete and without vs with uncertainty and/or asymmetric information. Second, to present a variety of microeconomic models that explains the role of capital and financial markets in the economic system. The main topics cover areas related to the analysis of financial markets and credit markets, for example to explain the role of financial intermediation. Math and statistical tools useful for the analysis are introduced whenever needed.

Textbooks
Basic/intermediate level
- Frank, H. “Microeconomics and Behaviour”, McGraw-Hill Higher Education, 2021 (FR).
- Varian, H. R. “Intermediate Microeconomics: A Modern Approach”, Norton, 9th ed. (but any edition works) (V1)
More advanced level
- Kreps, D. M. “A Course in Microeconomics Theory”, Princeton Univ. Press, 1990 (K).
- Varian, H. R. “Microeconomic Analysis”, Norton, 1992 (V2).

Further material/readings will be communicated and/or made available in the webpage of the course on the DIR platform.

The module of Economics of Information aims at studying economic models related to finance topics in presence of intertemporal choices, uncertainty, symmetric and asymmetric information.

Microeconomics, Macroeconomics, Math and Statistics.

The course carries 6 ECTS credits and comprises 45 hours of in-person teaching, consisting primarily of lectures. During the lectures, selected exercises made available to students will be solved and discussed in class through instructor-guided activities involving student participation. These activities are intended to apply the theoretical models to specific problems, including numerical ones, and to consolidate students’ understanding of the underlying economic mechanisms. Attendance is strongly recommended.

Students with physical disabilities, Learning Disabilities or Special Education Needs can request specific services and tools via the Staff Sviluppo e Coordinamento Carriere e Servizi alle Studentesse e agli Studenti, consulting the University webpage: https://www.uniupo.it/en/services/servicesstudents-physical-or-learning-disabilities. Students with disabilities, learning disabilities or special education needs, once they have contacted the University Staff, can refer to the tutor in charge of the course to define the examination modalities, concerning academic aspects.

Learning is assessed through an individual 90-minute written examination designed to evaluate students’ knowledge and understanding of the models covered in the course, their ability to apply them to problem-solving, and their ability to interpret the results critically.
During regular examination sessions, the examination consists of two open-ended questions, each divided into several parts or sub-questions. The questions may require students to present and discuss a theoretical model, solve a problem analytically or numerically, and provide an economic interpretation of the results.
Students who regularly attend classes may take a written end-of-course examination. Regular attendance will be verified by the instructor through appropriate means. The end-of-course examination has the same format and duration as the regular examination but consists of three questions, of which students must answer two. Students who do not pass the end-of-course examination or decline the grade awarded may take the examination during any regular examination session.
Each of the two questions answered is worth up to 16 points, for a maximum total of 32 points. Assessment is based on knowledge of the course content, the correctness of the analytical procedure, the ability to apply the models, the quality of the economic interpretation of the results, and the clarity and rigour of the written exposition.
A minimum score of 18 is required to pass the examination. Knowledge limited to the fundamental concepts and models, together with the ability to apply them to simple problems, results in a grade between 18 and 20. Adequate knowledge of the course content and correct application of the models, despite some inaccuracies, result in a grade between 21 and 24. Thorough knowledge and a good ability to analyse and interpret the models result in a grade between 25 and 27. Complete command of the course content, rigorous application of the models, and the ability to discuss their results, implications, and limitations independently result in a grade between 28 and 30. Honours are awarded for a score of at least 31.

1. Basic Microeconomics tools (V1 ch. 9-10-11-12; FR ch. 6; V2 ch. 11-19-20; K ch. 3-4):
- Consumption choices under complete and symmetric information; the case of complete markets
- Intertemporal choices and the role of financial and capital markets
- Choices under uncertainty, risk aversion and insurance provision
- Intertemporal choices under uncertainty with complete and incomplete financial markets.
2. Asymmetric information and contract theory: moral hazard and adverse selection (V1 ch. 38; FR ch. 6; V2 ch. 25; K ch. 16-17)
3. Insurance markets and adverse selection (Rothshild-Stiglitz Model)
4. Debt contracts with asymmetric information (Diamond Model; Diamond-Dybvig Model)
5. Credit Rationing (Stiglitz-Weiss Model)

No specific sessions are devoted to gender-related issues. Although the gender dimension is relevant to the discipline, it does not fall within the learning objectives or the specific content of this course.

By the end of the course, students are expected to have achieved the following learning outcomes.

Knowledge and understanding: Knowledge and understanding of the main microeconomic models concerning intertemporal choice, choice under uncertainty, complete and incomplete financial markets, asymmetric information, and contracts, as well as their applications to insurance and credit markets and financial intermediation.

Applying knowledge and understanding: Ability to formalise and solve, including numerically, the economic problems covered in the course; identify the incentives of the parties involved; compare the equilibria resulting from different informational, financial, and contractual structures; and interpret their results.

Making judgements: Ability to select the appropriate model, critically assess its assumptions, results, and limitations, and formulate positive and normative judgements consistent with the analysis performed.

Communication skills: Ability to present economic reasoning clearly and rigorously in writing, using verbal, mathematical, and graphical language appropriately.

Learning skills: Ability to use the tools acquired independently to address variations of the problems studied, identify connections between different models, and understand advanced microeconomic material.

Within the Finance curriculum, these learning outcomes contribute to the ability to understand and analyse the functioning of markets, contracts, and financial intermediaries under uncertainty and asymmetric information. Within the Economics curriculum, they contribute to the knowledge and application of advanced microeconomic models. They are also consistent with the professional profile of the economic and financial analyst envisaged by the Degree Programme.