Textbook: Information Economics

Christoph Schottmüller and I are writing a textbook on information economics, titled Information Economics: A Course in Practical Theory. The book covers all of information economics – from foundational concepts to recent advances like Bayesian persuasion, information design, and matching – with an emphasis on building economic intuition through practical examples and applications. The book is designed for students who want to develop a deep understanding of how information shapes economic interactions and institutions, from advanced undergraduates to master’s and beginning PhD students.

We start every topic with concrete examples and simple models that convey the core insight, then build up to more sophisticated ideas. The goal is to give readers deep economic intuition without requiring them to master advanced mathematical machinery first. The book also emphasizes connections between models and concepts. Every chapter contains learning goals and exercise questions. Write to me at ole.jann@cerge-ei.cz if you’d like to read two sample chapters (“Beliefs and Inference” and “Bayesian Persuasion”), would like to be notified when the book comes out, or to discuss using the material in your own teaching.

List of chapters:

(Chapters in black exist as draft, chapters in grey are in preparation.)

  1. Introductory chapter: What is theory? How to read this book.

Part I: The Basics

  1. Prices, markets, information – welfare theorems and when they fail
  2. Beliefs and inference – Bayes’ rule, learning from experiments, information cascades
  3. Information theory – entropy, Blackwell, statistical discrimination
  4. Expected utility
  5. Aggregating preferences – impossibility theorems of Arrow, Gibbard-Satterthwaite, Sonnenschein-Mantel-Debreu
  6. Games and equilibria – equilibria, BNE, PBE and how to find them

Part II: Hidden Information

  1. Hidden information and adverse selection
  2. Communication: Signaling
  3. Communication: Cheap talk
  4. Communication: Verifiable information – disclosure, unraveling, certification
  5. Communication: Full commitment – Bayesian persuasion
  6. Screening
  7. Summary – compares communication and screening models and what we can learn

Part III: Contracts and Incentives

  1. Incentive contracts
  2. Incomplete contracts – property rights, hold-up problems, renegotiation
  3. The theory of the firm – Hart and Moore, boundary of the firm, integration
  4. Summary: Contracts and Incentives – discusses models and connects with real-world examples and experiments

Part IV: Institutions and Societies

  1. Mechanism design: Basic ideas and revelation principle
  2. Mechanism design: Public good provision
  3. Mechanism design: Bilateral trade, Myerson-Satterthwaite
  4. Auctions
  5. Matching
  6. Information design
  7. Summary: Markets, auctions, matching – connects the three concepts