An Introduction to the Economics of Information: Incentives and Contracts

An Introduction to the Economics of Information: Incentives and Contracts

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A textbook on optimal contract theory, An Introduction to the Economics of Information covers the consequences for the character and efficiency of the interaction between individuals or organizations when one party has more or better information on some aspect of the relationship. The book is written for a one-semester course for advanced undergraduates taking specialized course options, and for first year postgraduate students of economics or business.

After an introduction to the subject and the presentation of a benchmark model in which both parties share the same information throughout the relationship, chapters are devoted to the three main asymmetric information topics:

*Moral Hazard--when the asymmetry arises after the contract has been signed

*Adverse Selection--when the agent has relevant private infromation before the contract is signed; and

*Signalling--when the informed part is able to reveal private information through behaviour before the agreement is formalized.

The wide range of economic situations where the conclusions are applied includes such areas as finance, regulation, insurance, labour economics, health economics, and even politics. Each chapter presents the basic theory before moving on to applications and advanced topics. The problems are presented in the same framework throughout to allow easy comparison of the different results. Solved exercises test the student's understanding of the material, and develop the tools and skills provided by the main text to solve other, original problems.