Module code: ECO3038

Module Overview

This module looks at developments in microeconomic theory in relation to the role of information in the economy.  It studies models of the basic contract theory and asymmetric information (moral hazard and adverse selection). The module considers some of the applications of these models (e.g. insurance, labour market contracts). Presentation of the material involves mathematical tools that have been taught in FHEQ Levels 4 and 5 (algebra, calculus, constrained and unconstrained optimisation) and econometrics taught in FHEQ Level 5.

Module provider


Module Leader

NURMIKKO-METSOLA Sanna (Economics)

Number of Credits: 15

ECTS Credits: 7.5

Framework: FHEQ Level 6

JACs code: L120

Module cap (Maximum number of students): N/A

Module Availability

Semester 1

Prerequisites / Co-requisites

Economics and Mathematics students:  ECO2051 (Intermediate Microeconomics 2) is a pre-requisite for this module

Module content

Indicative content includes:

  • Baseline principal-agent model

  • Moral hazard models

  • Adverse selection models

  • Risk aversion

  • Applications: investment finance and insurance markets; estimating the welfare loss from adverse selection

Assessment pattern

Assessment type Unit of assessment Weighting
School-timetabled exam/test 30 MINUTES CLASS TEST IN WEEK 5 - MULTIPLE CHOICE TEST 10
School-timetabled exam/test 1 HOUR CLASS TEST IN WEEK 11 - SHORT ANSWER TEST 20
Examination 2 HOUR EXAMINATION 70

Alternative Assessment

Not applicable

Assessment Strategy

The assessment strategy is designed to provide students with the opportunity to demonstrate:

Understanding of developments in the economics of asymmetric information. Students who complete the module successfully will have demonstrated an ability to answer analytical questions on economic problems involving incomplete information, using a mixture of maths, diagrams and written and verbal reasoning.  They will have had the opportunity to demonstrate an understanding of all the topics in the module.

The summative assessment for this module consists of:

  • Two class tests

  • A final examination

Formative assessment and feedback

Students receive verbal feedback on questions asked during lectures and tutorials. Five question sheets (with solutions) are distributed during the module.  After each class test, written feedback is provided, consisting of a complete set of answers; questions that caused particular problems are covered in class. Office hours provide further opportunities for individual feedback.

Module aims

  • demonstrate how standard economic models and results are altered by the introduction of asymmetric information
  • help students to appreciate how many real-world phenomena can be rationalised with the aid of asymmetric information models
  • demonstrate the difficulty and value of empirical research that aims to test asymmetric information contract models
  • provide students with tools that help them to evaluate standard economic models

Learning outcomes

Attributes Developed
001 Set out and explain the basics of the principal-agent problems KC
002 Apply these ‘basics' to moral hazard, adverse selection settings KC
003 Explain how various real world outcomes (such as insurance deductibles, warranties and performance pay) can be rationalised in a principal-agent setting KC
004 Examine some implications of and testing for asymmetric information KC

Attributes Developed

C - Cognitive/analytical

K - Subject knowledge

T - Transferable skills

P - Professional/Practical skills

Overall student workload

Independent Study Hours: 123

Lecture Hours: 22

Tutorial Hours: 5

Methods of Teaching / Learning

The learning and teaching strategy is designed to:

  • enhance skills in economic thinking and written and verbal presentation

  • appreciate the complexities of choice under uncertainty and asymmetric information, weighing theory and practice

The learning and teaching methods include:

  • 2 hour lectures x 11 weeks

  • 1 hour tutorials for further discussion and exercise solving x 5 weeks

Indicated Lecture Hours (which may also include seminars, tutorials, workshops and other contact time) are approximate and may include in-class tests where one or more of these are an assessment on the module. In-class tests are scheduled/organised separately to taught content and will be published on to student personal timetables, where they apply to taken modules, as soon as they are finalised by central administration. This will usually be after the initial publication of the teaching timetable for the relevant semester.

Reading list
Upon accessing the reading list, please search for the module using the module code: ECO3038

Programmes this module appears in

Programme Semester Classification Qualifying conditions
Financial Mathematics BSc (Hons) 1 Optional A weighted aggregate mark of 40% is required to pass the module
Economics and Mathematics BSc (Hons) 1 Optional A weighted aggregate mark of 40% is required to pass the module

Please note that the information detailed within this record is accurate at the time of publishing and may be subject to change. This record contains information for the most up to date version of the programme / module for the 2021/2 academic year.