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The course covers the foundations and key topics of the economics of information (adverse selection, moral hazard, signaling, and strategic communication), with applications primarily in financial economics. Last update: Gregor Martin, doc. PhDr., Ph.D. (24.09.2026)
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The course provides tools to analyze asymmetric information and other information frictions in markets, companies, and organizations. Main applications are in corporate finance (credit rationing, pecking-order capital structure, security design, IPOs, market responses to seasoned equity offerings), financial markets (microstructure, credit ratings), and financial reporting (earnings management and disclosures). We also briefly cover applications of recent topics, such as information design and heterogeneous priors, in financial economics. Last update: Gregor Martin, doc. PhDr., Ph.D. (24.09.2026)
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Main sources Foucault, T., Pagano, M., Röell, A. (2013). Market Liquidity: Theory, Evidence, and Policy. Oxford University Press. (FPR) Liang, A. (2024) Information and Learning in Economic Theory. Available at: https://anniehliang.com/#teaching (AL) Tadelis, S. (2013). Game Theory: An Introduction. Princeton University Press, Chapters 12 and 15. (ST) Tirole, J. (2010). The Theory of Corporate Finance. Princeton University Press. Chapters 3 and 6. (JT)
Readings Acharya, V. V., DeMarzo, P., Kremer, I. (2011). Endogenous information flows and the clustering of announcements. American Economic Review, 101(7), 2955-2979. Birchler, U., Bütler, M. (2007). Information Economics. Routledge. Allen, F., Barbalau, A. (2024). Security design: A review. Journal of Financial Intermediation, 60, 101113. Bolton, P., Dewatripont, M. (2005). Contract Theory. Cambridge: MIT Press. Chapters 2-5. Dybvig, P. H., Zender, J. F. (1991). Capital structure and dividend irrelevance with asymmetric information. The Review of Financial Studies, 4(1), 201-219. Gregor, M., Michaeli, B. (2025). Board bias, information, and investment efficiency. Review of Accounting Studies, 30(2), 1432-1462. Guttman, I., Kadan, O., Kandel, E. (2006). A rational expectations theory of kinks in financial reporting. The Accounting Review, 81(4), 811-848. Holmström, B. (1999). Managerial incentive problems: A dynamic perspective. The Review of Economic Studies, 66(1), 169-182. Jann, O., Schottmüller, C. (2024). Notes on Information Economics. Mimeo. Jehle, G. A., Reny, P. (2011). Advanced Microeconomic Theory. Pearson Education. Especially Chapter 8. (JR) Kreps, D. M. (2023). Microeconomic Foundations II: Imperfect Competition, Information, and Strategic Interaction. Princeton University Press. Especially Chapter 20. Morris, S., Shin, H. S. (2002). Social value of public information. American Economic Review, 92(5), 1521-1534. Last update: Gregor Martin, doc. PhDr., Ph.D. (24.09.2026)
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Lectures, Tutorials, Assignments, Exams You are allowed to use AI tools such as ChatGPT, Copilot, Claude, or similar technologies to consult on the course materials. You are encouraged to consult the AI tools about related work in economics and finance. You are not allowed to use AI tools to create a solution for your assignments, but you can consult and review materials from classes that are relevant to the assignment with the AI. I strongly discourage you from skipping the process of creating your own solution from your knowledge to prepare well for the pen-and-paper midterm and final exams. Last update: Gregor Martin, doc. PhDr., Ph.D. (24.09.2026)
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Content I Foundations of Information Probability Space Common Knowledge Bayesian Updating for Binary and Gaussian Information
II Games with Incomplete Information Static Games of Incomplete Information Bayesian Nash Equilibrium Application: Financial Markets as Beauty Contests (Morris and Shin, 2002) Dynamic Games of Incomplete Information Perfect Bayesian Equilibrium Separating and Pooling Equilibria Intuitive Criterion
III Asymmetric Information in Corporate Finance a) Adverse Selection in Corporate Finance Model 1: Credit Contracts and Cyclical Investments Unlimited Liability and Collateral Model 2: Seasoned Equity Offerings Equity Dilution b) Signaling in Corporate Finance Model 3: Security Design with Own Wealth Underpricing in IPOs Evidence on Signaling in Mortgage Markets (Adelino, Gerardi, and Hartman-Glaser, 2019)
IV Incentive Contracting a) Moral Hazard in Corporate Finance Agency Cost Credit Rationing b) Security Design and Optimal Capital Structure Pecking-Order Hypothesis (Own) Capital Requirements: Empirical Effects
V Asymmetric Information in Financial Markets Bid-Ask Spreads Liquidity and Price Discovery
VII Extra Topics a) Beyond Rational Expectations Heterogeneous Priors Application: Subordinate Debt (Birchler and Bütler, 2007) b) Information Design Application: Investment Efficiency Last update: Gregor Martin, doc. PhDr., Ph.D. (24.09.2026)
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No entry requirements for Master students of Economics and Finance. Last update: Gregor Martin, doc. PhDr., Ph.D. (22.09.2025)
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