20296 - ADVANCED MICROECONOMICS

Students attending the course should be familiar with basic microeconomic concepts and maximisation. In particular, they should be familiar with the basic consumer problem facing a budget constraint and with the fundamentals of unconstrained and constrained maximisation. For students that are not so familiar with these concepts, associated to the course, we provide online videos and material, as well as a couple of in-class introductory lectures that briefly introduce to these concepts. The introductory material and the lectures must be followed before starting the course.

The objective of the course is to provide the basic microeconomic tools to be used in the analysis of problems of resource allocation by economists working in research, in business or in various organisations. The course adopts both a positive and a normative approach. It includes recent advances of the theory and aims at developing the capacity to apply economic concepts to real-world problems.

The course is divided into two main sections. In the first part, General Competitive Analysis is developed both in its positive and normative dimensions. In the second part of the course, the problem of designing efficient allocation mechanisms is studied in a general perspective. Incomplete information and incentives issues are introduced.

• PART 1: Competitive Equilibrium, Pareto Optimality, and Asset Pricing.
• Nonlinear Optimization and the Consumer Problem: a Review.
• Pure Exchange Competitive Equilibrium.
• First and Second Welfare Theorems.
• General Equilibrium with Uncertainty.
• A Primer on Asset Pricing.
• PART 2: Theory of Contract, Incentives and Behavour.
• Hidden information: screening.
• Hidden action: moral hazard.
• Signalling and Competitive Screening.
• Introduction to Mechanism Design.
• Optimal income taxation.
• Applications to financial and labour contracting.
• Introduction to Dynamic Contracts.
• Introduction to Behavioural Economics

At the end of the course the student will be familiar with the most widely used models of competitive equilibrium, finance and private information together with applications to the labor, the credit and the financial markets, as well as applications to the theory of optimal taxation. 

• Solve for the competitive equilibrium of an economy and for the optimal allocation under various assumption of asymmetric information between agents.
• Understand the basic of  financial markets and asset pricing.
• Understand the role of dowen payment and imperfect coverage in insurance markets.  
• Understand the functioning of financial markets and interpret what happening during the financial crisis using formal microeconomic models. 
• Interpret and evaluate the current discussion on labor and capital income taxation through the lents of formal models.
• Interact in a constructive way and think formally. 

• Face-to-face lectures
• Exercises (exercises, database, software etc.)
• Case studies /Incidents (traditional, online)
• Individual assignments
• Group assignments

During the course, the students are able to test their knowledge and understanding of the material by mean of a series of problem sets which are solved in class. In order to facilitate the teaching assistant in the evaluation of the problem sets, we encourage them to be written using a scientific editor (such as, for example, TeX, LaTeX, Lyx, ScientificWorkplace, Scientifc Word, or World with equation editor) and printed or handed in pdf format. 

The form of evaluation is exclusively in written format.

• Examination is based on topics and exercises presented during the course.
• Slides and other teaching material are distributed during the course.
• The teacher provides lecture notes and detailed indications on charpter and sections from the following textbooks: 
• P. BOLTON, M. DEWATRIPONT, Contract Theory, MIT press.
• T. BORGERS, An Introduction to the Theory of Mechanism Design, Oxford University Press.  
• J.H. COCHRANE, Asset Pricing, Princeton University press.
• J.J. LAFFONT, D. MARTIMORT, The Theory of Incentives, Princeton University press.
• I. MACHO-STADLER, J.D. PEREZ-CASTILLO, An Introduction to the Economics of Information: Incentives and Contracts, Oxford University press.
• A. MAS-COLELL, M. WHINSTON, J.R. GREEN, Microeconomic Theory, Oxford University press.
• B. SALANIE, The Economics of Contracts, MIT press.
• J. Y. CAMPBELL, Financial Decisions and Markets. A Course in Asset Pricing, Princeton University Press.