The Economics of Uncertainty (3) Uncertainty is examined in contracts, with an emphasis on limited liability. Asymmetric information and economic puzzles are also considered.
ECON 417W The Economics of Uncertainty (3)
This course studies the allocation of resources under uncertainty. Decisions without perfect information require the use of probability theory and expected utility preferences. The seminal work of Arrow and Debreu is used as a starting point. Probability and utility theory are then used to interpret insurance contracts. Limited liability is introduced and the Modigliani-Miller Theorem is applied to loan guarantees, deposit insurance, and insurance claims. Finally, asymmetric information is discussed and the resulting problems of moral hazard and adverse selection are addressed.
The course objectives are to introduce students to the theoretical framework used by economists to study uncertainty and to apply that framework in order to explain various regularities observed when decisions are made without complete information, to examine the empirical evidence, and to consider policy issues in this area.
The course will count toward both the major and a minor in economics.
Note : Class size, frequency of offering, and evaluation methods will vary by location and instructor. For these details check the specific course syllabus.