The material in the pass course is extended in the honours lectures to a general equilibrium setting using the state-preference model of Arrow and Debreu. Also, the course examines the economics of insurance in the presence of asymmetric information where moral hazard and adverse selection problems arise. Reading: As for the pass course plus additional lecture handouts.

In addition to the learning outcomes for the pass component of this course honours students will:

• be introduced to the role played by assymetric information in insurance markets;
• identify the effects of moral hazard and adverse selection in insurance markets;
• examine the Modigliani-Miller financial policy irrelevance theorms in atwo-period Arrow-Debreu state preference model fo the capital market.

Two examinable tutorials will be held during the semester, they are both fully redeemable.  The first one, which can contribute 10 per cent to the final grade, will be held just prior to the mid-semester break, while the second one, which can contribute 15 per cent, will be completed just after the mid-semester break.  The dates will be set two weeks in advance and will be announced in lectures and posted on WATTLE.  A three (3) hour exam is held at the end of semester.

Lectures and tutorials as for the pass course plus one additional honours lecture per week.

ECON2101/2111 Microeconomics 2 (P or H).

Elton, E.J. and Gruber, M.J., Modern Portfolio Theory and Investment Analysis (5th edition), John Wiley and Sons, 1995
Hirschliefer, J., Investment, Interest, and Capital, Prentice Hall, 1970.

Please refer to Course Website