Advanced Microeconomics - JEM215

• Title: Advanced Microeconomics
• Guaranteed by: Institute of Economic Studies (23-IES)
• Faculty: Faculty of Social Sciences
• Actual: from 2024
• Semester: winter
• E-Credits: 9
• Examination process: winter s.:
• Hours per week, examination: winter s.:2/2, Ex [HT]
• Capacity: 180 / 180 (185)
• Min. number of students: unlimited
• 4EU+: no
• Virtual mobility / capacity: no
• State of the course: taught
• Language: English
• Teaching methods: full-time
• Note: course can be enrolled in outside the study plan; enabled for web enrollment; priority enrollment if the course is part of the study plan
• Guarantor: doc. PhDr. Martin Gregor, Ph.D.
• Teacher(s): doc. PhDr. Martin Gregor, Ph.D.; Tersoo David Iorngurum
• Class: Courses for incoming students
• Incompatibility : JEM003
• Is incompatible with: JEM003

Annotation

The course develops tools to study informational frictions in markets and within companies. We cover the key topics in the economics of information (adverse selection, moral hazard, voluntary disclosures, and information design) and introduce their applications in financial economics.

Last update: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)

Aim of the course

Our leading framework is security contracting; the course explains how information frictions generate overinvestment, credit rationing, pecking-order capital structure, adoption of ratings, underpricing of assets in IPOs, and negative market responses to seasoned equity offerings. We also cover the basics of financial market microstructure, disclosures with public news, earnings management, career concerns, monopoly certifications, and strategic communication between corporate boards and top management.

Last update: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)

Literature

Main references

Baley, I., Veldkamp, L. (2023). Bayesian Learning. In Handbook of Economic Expectations (pp. 717-748). Elsevier Academic Press. (BV)

Foucault, T., Pagano, M., Röell, A. (2013). Market Liquidity: Theory, Evidence, and Policy. Oxford University Press. (FPR)

Jehle, G. A., Reny, P. (2011). Advanced Microeconomic Theory. Pearson Education. Especially Chapter 8. (JR)

Liang, A. (2024) Information and Learning in Economic Theory. Available at: https://www.anniehliang.com/lecture-notes (AL)

Milgrom, P. (2008). What the seller won't tell you: Persuasion and disclosure in markets. Journal of Economic Perspectives, 22(2), 115-131. (PM)

Tirole, J. (2010). The Theory of Corporate Finance. Princeton University Press. Chapters 3 and 6. (JT)

Tadelis, S. (2013). Game Theory: An Introduction. Princeton University Press, Chapters 12 and 15. (ST)

 

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.

Guttman, I., Kadan, O., Kandel, E. (2006). A rational expectations theory of kinks in financial reporting. The Accounting Review, 81(4), 811-848.

Jann, O., Schottmüller, C. (2024). Notes on Information Economics. Mimeo. 

Kanodia, C., Sapra, H. (2016). A real effects perspective to accounting measurement and disclosure: Implications and insights for future research. Journal of Accounting Research, 54(2), 623-676. Section 3.

Kreps, D. M. (2023). Microeconomic Foundations II: Imperfect Competition, Information, and Strategic Interaction. Princeton University Press. Especially Chapter 20.

Stiglitz, J. E., Kosenko, A. (2024). The Economics of Information in a World of Disinformation: A Survey Part 1: Indirect Communication (No. w32049). National Bureau of Economic Research.

Stiglitz, J. E., Kosenko, A. (2024). The Economics of Information in a World of Disinformation: A Survey Part 2: Direct Communication (No. w32050). National Bureau of Economic Research.

Last update: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)

Teaching methods

Lectures, Tutorials, Assignments, Exams

Last update: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)

Syllabus

I Foundations of Information

Information and Knowledge

Application: Disagreement (Aumann, 1976; Geanakoplos and Polemarchakis, 1982)

AL 1-3

Bayesian Updating and Signals

Bayes Plausibility

AL 2, 8

Gaussian Information

Positive Dependence Notions

AL 1-3

BV 2

 

II How to Solve Games with Incomplete Information?

Complete and Incomplete Information

Perfect and Imperfect Information

ST 3, 5, 6, 7, 8

Static Games of Incomplete Information

Bayesian Nash Equilibrium

Dynamic Games of Incomplete Information

Perfect Bayesian Equilibrium

ST 12, 15

JR 7

Application: Monopolistic Pricing (Property Sale)

Application: Career Concerns (Holmstrom, 1999)

Application: (Macro) Coordination (Morris and Shin, 2002)

 

III Adverse Selection

Market Breakdown/Unraveling

Underinsurance in Simple Insurance Markets

JR 8.1.1

Adverse Selection in Corporate Finance

Security Design on the Primary Market

Investment Efficiency

Return Dispersion and Cross-subsidization

Seasoned Equity Offerings

Pecking-order Hypothesis: The Optimal Mix of Debt and Equity

JT 6

Adverse Selection in Financial Markets

Market Microstructure

Bid-Ask Spread (Glosten and Milgrom, 1985)

FPR 3

BB 7

 

IV Signaling

Signaling in Corporate Finance

Ratings and Certificates

Underpricing in IPOs

JT 6

 

V Disclosures

Verifiable Evidence

Full Disclosure/Unraveling

Uncertainty over Information Endowment

Application: Irrelevance of Public News in Financial Markets (Acharya, DeMarzo and Kremer, 2011)

PM

 

VI Moral Hazard

Earnings Management

Costly Misreporting

Application: Bunching in Financial Reporting (Guttman, Kadan and Kandel, 2006)

Application: Real Effects of Accounting on Investments (Kanodia and Sapra, 2016)

Moral Hazard in Corporate Finance

Credit Rationing

JT 3

Last update: Gregor Martin, doc. PhDr., Ph.D. (20.12.2024)

Entry requirements

No entry requirements for Master students of Economics and Finance.

Last update: Gregor Martin, doc. PhDr., Ph.D. (03.09.2024)