Dynamic Games of Incomplete Information

Define signaling games and the concept of Perfect Bayesian Equilibrium (PBE).

Set up Akerlof's 'Market for Lemons' as a model of adverse selection.

Demonstrate how asymmetric information leads to market failure in the 'Market for Lemons' model.

Set up Spence's job-market model as a signaling game.

Derive the conditions for a separating equilibrium in Spence's signaling model.

Analyze a simple Principal-Agent model to explain the strategic responses to moral hazard.