Course outline - York University

3.1 Banks as coalitions of depositors with liquidity insurance. The Diamond-Dybvig model.3.2 Banks as delegated monitors.3.3. The tradeoff between competition among intermediaries and stability; modelling the subprimelending crisis.Readings: FR, sections 2.2, 2.4, 3.5.4.Trade in markets with asymmetric information and adverse selection.4.1 The basic model with two risk types; pooling and separating equilibria.4.2 Insurance markets. The Rothschild-Stiglitz equilibrium.4.3 Auctions.4.4 Corporate Debt Financing under Asymmetric Information.4.5 Corporate Equity Financing under Asymmetric Information.Readings: 4.1-4.3: S, sections 2.2, 2.3, 3.1.3, 3.2, 3.2.3. 4.4-4.5: T-CF, sections 6.2, 6.3; FR, section 2.35.Contracting under moral hazard5.1. The basic model with risk-averse agent and unobservable effort5.2 The model based on limited liability.5.3 Dynamic moral hazard. Intertemporal incentive tie-ins. Career concerns.5.4. Insurance and moral hazard.5.5 Moral hazard and corporate financing. Role of monitoringReadings: S, sections 5.1, 5.2, 5.3.3; T-CF sections 3.2, 3.36.Information aggregation in markets (if time permits)Readings: V, sections 1.1-1.6.7.Empirical studies (if time permits)Readings: TBA. Articles will be placed in class folder.Grading: There will be a midterm exam (40% of final grade) on February 15, and a final (60%) in April.Class participation and activity may count in marginal cases.Makeup Exam Policy: A student absent from writing an exam(s) will receive a mark of ’0’for the missedexam.There will be no opportunity for make-up or deferred exam(s) regardless of the circumstances.Academic Honesty Policy: Conduct that violates the ethical or legal standards of the University communityor of one’s program or specialization may result in serious consequences. Students should look at theSENATE POLICY ON ACADEMIC HONESTY found in the following locations: 1. The New Students’Handbook (p. 33): http://www.arts.yorku.ca/pdfs/NSH_0607.pdf 2. The York University Secretariat:http://www.yorku.ca/secretariat/policies/document.php?document=692