IM 7011: Information Economics, Fall 2013

Instructor: Ling-Chieh Kung
Department of Information Management
National Taiwan University

Note. While the official title of this course is "Information Economy", the course is actually "Information Economics". Though these two fileds are indeed related, they are just different. In this course, we do hope to address some issues regarding information goods, information systems, and the information industry. Nevertheless, even if we really do so, those will not be the main focus of this course.

Note 2. For this course, I plan to adopt the "flipped classroom" principle, which should be new to most of NTU students. Please pay attention to the "Policy" section to get an idea about the design of this course.

In the field of Information Economics, or Economics of Information, people use economic tools to study the value and impact of information. Among all subjects, information asymmetry is one of the most important. Information asymmetry, which is pervasive in practice, arises when some entities in a system possess private information that is not observable by other entities. While information asymmetry typically results in inefficiency, people analyze it, search for the underlying driving forces, and try to find a good way to deal with it when it cannot be eliminated. These are what we want to do in this course. Due to the nature of this field, this course must be theoretical. Rigorous mathematics, including Calculus, Convex Optimization, Probability, and Game Theory, are required for one to play in this field. Applications of the theories we will study include quantity discount, warranty design, supply chain contracting, salesforce compensation, pricing of information goods/services, etc.

This is an elective course offered in the Department of Information Management in National Taiwan University. The target "customers" of this course are graduate and senior students, though junior students may still enroll. In most cases, all students who want to enroll in or audit this course are welcome.

Basic information

Instructor	Ling-Chieh Kung (孔令傑) E-mail: lckung(AT)ntu.edu.tw Office: Room 413, Management Building II Tel: 02-3366-1176.
Teaching assistant	There will be no teaching assistant for this course.
Syllabus	Syllabus
Lectures	9:10am-12:10pm, Monday. Room 204, Management Building II.
Office hour	9:10am-11:10am, Thursday or by appointment. Room 413, Management Building II.
Prerequisites	Calculus: "Calculus I" and "Calculus II" for the first-year IM students, or equivalent. Convex Optimization: "Operations Research" in the IM department, or equivalent. Probability: "Statistics I" in the IM department, or equivalent. Game Theory: "Economics" in the IM department, or equivalent.
Main reference	Contract Theory by P. Bolton and M. Dewatripont. Around ten academic papers.
References	Game Theory for Applied Economists by R. Gibbons. The Theory of Incentives: The Principal-agent Model by J.-J. Laffont and D. Martimort. Information Rules: A Strategic Guide to the Network Economy by C. Shapiro and H. Varian. Auction Theory by V. Krishna.
On-line resources	To check grades: CEIBA. To download or link to materials: This website. To discuss: the bulletin board "NTUIM-lckung" on PTT.

Tentative plan

Topic	Estimated time	Reading
Overview and review	Two weeks	N/A
Contracting without information asymmetry	Two weeks	N/A
Hidden information: screening	Four weeks	Ch. 2 of Contract Theory
Hidden action: moral hazard	Two weeks	Ch. 4 of Contract Theory
Hidden information: signaling	Two weeks	Ch. 3 of Contract Theory
Advanced topics	Two weeks	Ch. 6 or 7 of Contract Theory

Schedule

Week	Lecture Date	Topics, materials, and videos
1	2013/9/9	Overview, quiz, and review of optimization
		(The quiz is for you to test your background knowledge.)
		Slides, Lecture 1.3.3.
2	2013/9/16	Review of Game Theory
		Slides, Lecture 2.1, Lecture 2.2, Lecture 2.3
3	2013/9/23	Incentives (Pasternack, 1985)
		Slides, Lecture 3.1, Lecture 3.2, Lecture 3.3
4	2013/9/30	Incentives (McGuire and Staelin, 1983)
		Slides, Lecture 4.1, Lecture 4.2, Lecture 4.3
5	2013/10/7	No class: The instructor is in a conference.
6	2013/10/14	Screening: Two-type model (Contract Theory: Section 2.1)
		Slides, Lecture 6.1, Lecture 6.2, Lecture 6.3, Lecture 6.4
7	2013/10/21	Screening: Two-type model (Taylor and Xiao, 2009)
		Slides, Lecture 7.1, Lecture 7.2, Lecture 7.3, Lecture 7.4, Lecture 7.5
8	2013/10/28	Screening: Continuous-type model (Contract Theory: Section 2.3)
		Lecture 8.1, Lecture 8.2, Lecture 8.3, Lecture 8.4, Lecture 8.5
9	2013/11/4	Screening: Continuous-type model (Sandararajan, 2004)
		Lecture 9.1, Lecture 9.2, Lecture 9.3, Lecture 9.4.1, Lecture 9.4.2
10	2013/11/11	Hidden actions (Contract Theory: Sections 4.1-4.3)
11	2013/11/18	Hidden information and actions (Kung and Chen, 2011)
		Slides, Lecture 11.1, Lecture 11.2, Lecture 11.3, Lecture 11.4
12	2013/11/25	Hidden information and actions (Chen and Huang, 2013)
		Slides, Lecture 12.1, Lecture 12.2, Lecture 12.3, Lecture 12.4
13	2013/12/2	Presentations for project proposals
14	2013/12/9	Signaling (Contract Theory: Section 3.1)
		Slides, Lecture 14.1, Lecture 14.2, Lecture 14.3, Lecture 14.4
15	2013/12/16	Signaling (Kalra and Li, 2008)
		Slides, Lecture 15.1, Lecture 15.2, Lecture 15.3, Lecture 15.4
16	2013/12/23	Review for this semester
17	2013/12/30	Project presentations
18	2014/1/6	Project presentations

Homework

Problems	Release Date	Due Date	Solution
Homework 1	2013/9/9	2013/9/13	Solution
Homework 2a	2013/9/16	2013/9/27	See Homework 2b
Homework 2b	2013/9/23	2013/9/27	Solution
Homework 3	2013/10/1	2013/10/11	Solution
Homework 4a	2013/10/16	2013/10/28	See Homework 4b
Homework 4b	2013/10/22	2013/10/28	Solution
Homework 5	2013/11/18	2013/11/25	Solution
Homework 6	2013/12/9	2013/12/16	Solution

Exams

Problems	Solution
Midterm	N/A
Final

Project

Project description
Suggestions for formatting your report
Important dates:
- By November 24, 2013: Inform the instructor about team formattion and date selection.
- November 25, 2013: The number of teams will be announced.
- December 2, 2013: Proposal presentations.
- December 30, 2013 and January 6, 2014: Project presentations.

Grading

Breakdown

Quiz: 0%.
Homework: 20%.
Project: 20%.
Class problems: 15%.
Class participation: 5%.
Two exams: 40% (one of the following two plans will be chosen to maximize your grades):
- Plan 1: midterm 20% and final 20%.
- Plan 2: midterm 15% and final 25%.

Conversion rule

The final letter grades will be given according to the following conversion rule:

Letter	Range	Letter	Range	Letter	Range
A+	[90, 100]	B+	[77, 80)	C+	[67, 70)
A	[85, 90)	B	[73, 77)	C	[63, 67)
A-	[80, 85)	B-	[70, 73)	C-	[60, 63)

Policies

Flipped Classroom	The main idea of flipped classroom is "lectures in videos, then discussions in classes". I am motivated to adopt this principle by professor Benson Yeh (葉丙成) in NTU EE, who has applied it in his course "Probability and Statistics" and got a great outcome. To learn more about the principle, please search "flipped classroom" or "翻轉教室" online. Before each Monday lecture (except the first one), the instructor will upload a video containing the materials to be discussed on that Monday. The video will be no longer than one and a half hour. Students must watch the video before the lecture. During the lecture, we do three things: Discussing the materials: Students may ask questions regarding anything covered in the video. Students may also ask the instructor to teach a certain part again. However, the instructor will not redo the whole lecture. If no student ask questions, we will move to Part 2 directly. Solving class problems: Students will form teams to work on problems assigned by the instructor (For team formation, see "Teams" below). Once the instructor assigns a problem, students in a team will discuss for around 10 minutes. Then at least one team will demonstrate their answer on the whiteboard (in English) to the class. The instructor will make comments when necessary. Further discussions: After enough problems have been solved, some extended topics, which are not limited to course materials, will be discussed. In short, students must watch videos before the lecture and still attend the lecture for discussions. Please note that after the lecture, students also need to do homework problems at home (see below).
Teams	Students must form teams to do class problems and homework. Each team must have three students unless the number of students enrolling in this course is not a multiple of three. Students may change teammates from homework to homework. However, once three (or two) students form a team for one homework, they must be in a team for class problems until the submission of the next homework. All students get the same grades for each homework and class problem. Students may also need to form teams for the final project. In this case, teammates for the project need not to be the same as those of any homework.
Office hour	You are welcome to my office hour to ask me any question. You may ask me to clarify some concepts, give hints for homework problems, or discuss the final project. In fact, discussions not related to Information Economics are also welcome. If you don't want to come in the designated time, feel free to send me an e-mail to schedule a meeting.
Class problems	We do not require one to attend all the lectures. If you have something more important to do, feel free to drop a class. Nevertheless, as class problems count for grades, missing a class makes it impossible for you and less possible for your teammates to get this part of grades. For some class problems, students may volunteer to demonstrate their answers to get points. For some other ones, the instructor will randomly ask a team to answer and give or deduct points accordingly.
Class participation	As communication skills are essential for almost everyone, we encourage class participation and include it in evaluating each student. In other words, class participation is not just sitting in the classroom. During lecture time or office hour, you are more than welcome to ask or answer questions and provide comments. You are also encouraged to use the course bulletin board on PTT or send me e-mails at any time. These will not only give you a good participation grade but also significantly help your learning.
Homework	Starting from the first week, homework will be assigned roughly once per two weeks. Students must form teams to do homework. For each homework, each team needs to submit only one paper for one homework, and all team members will get the same grade. Please put a hard copy of your work into my mailbox on the first floor of the Management Building II by the due time. No submission in class. No late submission. The lowest one homework grade will be dropped (i.e., you may skip one homework if you want). The instructor will grade homework and regrade them upon request. If you have a regrading request, please contact the instructor directly (e.g., in the lectures).
Project	Please form a team of at most n students, where the value of n will be determined according to the number of students enrolling in this course. Each team will write a research proposal for a self-selected topic, make a 30-minute presentation, and submit a report. All team members must be in class for the team to present.
Exams	Both the two exams will be in-class and open whatever you have (including all kinds of electronic devices). However, no discussion is allowed. Cheating will result in severe penalty. The final exam is comprehensive: It covers everything taught in this semester.