Economics of Uncertainty
This textbook offers a distinctive and accessible approach to the economics of uncertainty by placing risk-sharing at the core of the analysis. Rather than relying on the standard principal-agent or mechanism-design framework, it develops a unified perspective that interprets insurance, incentives, and financial arrangements as variations on the possibilities and limits of sharing risk under information frictions.
A key strength of the book is its focus on environments in which all agents are exposed to risk. By moving beyond the common assumption of a risk-neutral principal with deep pockets, it provides a more realistic and broadly applicable framework for analysing moral hazard, adverse selection, signalling, and banking models. This perspective enables readers to understand asymmetric information not merely as a contracting problem, but as a constraint on socially valuable risk-sharing arrangements.
The exposition combines rigour with accessibility. Formal models are presented with propositions, proofs, and exercises, while requiring only intermediate microeconomics, basic calculus, and elementary probability. This makes the book ideally suited for advanced undergraduate and master’s courses, as well as for readers seeking a clear and coherent introduction to modern information economics.
Tai-Wei Hu is a Professor of Economics at University of Bristol. He earned a Bachelor's degree from National Taiwan University in 1998 and a Ph.D. in Economics from Penn State University in 2009. He spent the first part of his academic career at the Kellogg School of Management, Northwestern University. He joined the faculty at Bristol in 2017. His main research interests include bounded rationality, Macro finance and monetary economics.
Neil Wallace is an Emeritus Distinguished Professor of Economics at Penn State University. He earned a Bachelor's degree from Columbia College in 1960 and a Ph.D. in Economics from the University of Chicago in 1964. He spent the first part of his academic career at the University of Minnesota and as a consultant to the Federal Reserve Bank of Minneapolis. After a brief stay at the University of Miami, he joined the faculty at Penn State in 1997. He retired at the end of the 2021-22 academic year. His main research area is monetary economics.