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....Continua