TrainingsMasterEconomicsCoursesRisk and incentives

Master EconomicsUE Risk and incentives


The main objective of this course is to provide the students with a theoretical synthetic framework so that they can face the difficulties of the study of economic decisions under uncertainty. Two main general topics will be dealt with : (1) the theory of decision under uncertainty, and (2) the moral hazard issues between several economic agents.

Course outline :

Chapter 1 : Risk, uncertainty and strategies

  • Introduction of the main concepts (risk, uncertainty, probability, moral hazard, adverse selection)
  • Probabilistic framework (space of states, random variables)
  • Numerical decision criteria (preferences, representation by a numerical criteria)
  • Game theory, Principal-Agent model

Chapter 2 : Expected Utility

  • The virtues of the expected utility (Saint-Petersburg paradox)
  • The axiomatics of the expected utility (objective and subjective expected utility)
  • The limits of the expected utility (Allais paradox, Ellsberg paradox)
  • Generalisations of the expected utility (rank-dependent expected utility, Choquet expected utility)

Chapter 3 : Risk Aversion and Risk Measures

  • Qualitative approach (certainty equivalent, risk premium, risk attitude)
  • Quantitative approach (local measures of risk aversion)
  • Stochastic dominance (first and second order)

Chapter 4 : Introduction to moral hazard issues

  • Risk sharing and sharecropping contracts
  • Credit with risk aversion of the borrower

Chapter 5 : Other applications

  • Risky saving
  • Application of the expected utility to static portfolio choice

Professional skills

  • Knowledge of concepts in the area of risk and uncertainty
  • Mastering of the standard criterion of the expected utility (theory and applications)
  • Knowledge of the limits of the standard model of the expected utility
  • Introduction to the models of moral hazard (theory and applications)

Languages used

Main languages used by this course:

  • Français
  • Anglais


  • Eeckhoudt, L., C. Gollier and H. Schlesinger. Economic and Financial Decisions under Risk. Princeton University Press, 2005.
  • Ferrari J.-B. Économie du risque - Applications à la finance et à l’assurance.
  • Ferrari J.-B. Économie de la prévention et de l’assurance.
  • Gayant, J.-P. Risque et décision.
  • Geweke, J. (Ed.), Decision Making under Risk and Uncertainty. Kluwer Academic Publishers, 1992.
  • Gollier, C. The Economics of Risk and Time. MIT Press, 2001.
  • Henriet D. et Rochet J.-C. Microéconomie de l’assurance.
  • Jacquillat, B., Solnik, B., Pérignon, C. Marchés financiers – Gestion de portefeuille et des risques.
  • Kast, R. La théorie de la décision.
  • Laffont, J.-J., Cours de Théorie Microéconomique. Volume II : Économie de l’Incertain et de l’Information, Economica, 1991.
  • Quittard-Pinon, F. Marchés des capitaux et théorie financière.

Fundamental prerequisites

Probability theory, consumer economics.

Recommended prerequisites

Mathematic of optimisation.

Structure and organisation

Professoral theoretical lecture and application. Written final exam.

Volume of teachings

  • Lectures: 24 hours