CMM Lecture Series

This course provides a brief introduction into the theory of economic decision making under uncertainty. Specifically, we study different classes of principal agent games where a principal contracts with a privately informed agent. Special attention will be given to games of liquidity provision in financial markets.

The course is tentatively structured as follows:

• Lecture 1: Monopoly and Quality Pricing
  
• Lecture 2: A Principal-Agent Model of the Limit Order Book
  
• Lecture 3: Principal-Agent Models as Optimal Control Problems
• Lecture 4: Multiple Principals: Catalogue Games
• Lecture 5: Risk Minimization in a Principal-Agent Model

and will be based on the following papers:

Lecture 1+2: Biais, Martinmort, and Rochet "Competing mechanisms in a common value environment"; Econometrica, 68 (4), 799-837 (2000)

Mussa and Rosen "Monopoly and Quality", Journal of Economic Theory 18, 301-317 (1978)

Lecture 3: Weber, T. "Screening with Externalities"; Working Paper.

Lecture 4: Page and Monteiro "Uniform Payo Security and Nash Equilibrium in Compact Games" Journal of Economic Theory, 134, 566-575 (2007)

Lecture 5: Horst and Moreno-Bromberg "Risk Minimization and Optimal Derivative Design in a Principal Agent Game", Mathematics and Financial Economics, 2 (1), 1-27 (2008).