ECON2249-2 : Economic models

University of Liege | Version française

Study programmes 2012-2013

Last update : 18/06/2013

ECON2249-2

Economic models

Duration :

16h Th, 8h Pr

Number of credits :

Advanced Master in Rural Economics and Sociology		2

Master in Agricultural Bioengineering, Professional Focus, 2nd year		2

Required preliminary complements to register in the Advanced Master in Rural Economics and Sociology		2

Lecturer :

Matthieu DELPIERRE

Language(s) of instruction :

French language

Organisation and examination :

Teaching in the first semester, review in January

Course contents :

This course is essentially focused on the economic analysis of risk in agriculture. Uncertainty is pervasive in agriculture as yields and market prices are very volatile.
The first chapter of the course is devoted to a review of the relevant concepts of the economics of risk and the representation of an agent's attitude and behavior in the presence of uncertainty.
The second chapter explains the reasons why insurance markets fail to offer suitable products for farmers, especially in developing countries. The issues of moral hazard and adverse selection are introduced.
A lack of protection against uncertainty has important consequences on a farmer's investment and production decisions. We will see how this is detrimental to the farmer's income.
The third chapter analyzes a first potential solution to the absence of formal insurance products, namely informal risk-sharing between farmers. Informal risk-sharing is an interesting option, but, as the course highlights, it is subject to enforcement constraints that may limit its scope.
Finally, the fourth chapter presents a novel kind of formal insurance contract that may be sustainable in agriculture, even in poor areas. In this scheme, farmers receive an indemnity based on the realization of a weather index, for instance.
Depending on the time available, the course may also tackle the issue of liquidity constraints in agriculture.

Learning outcomes of the course :

The aim of this course is to improve the students' understanding of risk and its implications. Risk is an abstract and subjective concept while its implications are very concrete and practical.
After completing the course, the student are therefore expected to be able to
distinguish between risk, its potential outcomes and its realization,
show his/her command of the tools used to model the perception of risk by an economic agent,
analyze concrete situations of choice with abstract concepts,
identify the key assumptions leading to problems of insurance,
understand why mutual support between individuals may emerge even among fully self-interested agents,
show critical reasoning abilities in general.

Prerequisites and co-requisites/ Recommended optional programme components :

Before starting the course, the students are expected to be familiar with the basic concepts of statistics, such as a random variable, and of microeconomics, such as a utility function. In terms of mathematics, derivatives and simple optimization techniques will be used.

Planned learning activities and teaching methods :

Lectures : 24h

Mode of delivery (face-to-face ; distance-learning) :

Face-to-face course