Economics
501b: Microeconomics
Spring 2009
10:30-11:50 T TH, Room B8, 28 Hillhouse
Discussion section 4:30-5:30
M, Room B8, 28 Hillhouse
Part
1: Games of Complete Information
30 Hillhouse Avenue, #26
432-6737
Office hours 9-10 TTH
Part
2: Games of Incomplete Information and
Information Economics
30 Hillhouse Avenue, #24
432-3592
Office hours T 1-2.30
Teaching assistants:
Jorge Balat (Email)
Eduardo Souza Rodrigues (Email)
Topic: This is the second part in the two
course sequence in Microeconomic Theory.
The first course covered the basic tools of microeconomic analysis. The second course provides an introduction to
game theory and information economics.
Game theory is the analysis of
strategic interaction among individual agents.
Game theory seeks to provide models of conflict and cooperation that are
relevant in a large class of situations basic to almost all social sciences. It offers insight into economic, political or
social situations in which individuals have different goals and
preferences. The basic assumptions of
game theory are that decision-makers pursue well-defined objectives (they are rational) and take into account their
knowledge or expectations of other decision-makers' behavior (they are strategic).
The first half of this course will introduce basic notions such as action, strategy and equilibrium for complete information environments. The second half extends the theory to cover situations where different agents have different information. This allows game theory to address situations where in which agents have private information that is not readily accessible to all other agents. The resulting asymmetry in information is pervasive in economic relationships: Customers know more about their tastes than firms, firms know more about their own costs than their competitors. As private information changes the nature of the economic relationships, new tools are required to analyze exchange and contracting environments. The basic adverse selection model is introduced first as the relationship between an informed and an uninformed agent. The general theory of mechanism design analyzes the problem of how an uniformed player, (principal or designer) can induce privately informed agents to reveal their information. This will leads us, inter alia, to the theory of auctions and related optimal trading problems. In contrast, in signaling models the informed agent attempts to credible convey its information to the uninformed player or the market. Finally, optimal contracts are analyzed in environment where the private information only arises after contracting, which is referred to as the moral hazard problem.
Requirements: Grades will be based on:
25%:
Mid-term exam: Thursday, February
26 (in class)
25%: Homework
50%: Final exam: Date to be announced.
Required texts (available at
Labyrinth Bookstore):
1. Andreu Mas-Collel, Michael D. Whinston and Jerry Green, Microeconomic Theory
(Oxford University Press, 1995).
2. Bernard Salanie, The Economics of Contracts
(MIT Press, 2005).
Recommended texts (available
at Labyrinth Bookstore):
1. Patrick Bolton and Matthias Dewatripont, Contract
Theory
(MIT Press, 2005)
2. Drew Fudenberg and Jean Tirole, Game Theory
(MIT Press, 1991)
3. Robert Gibbons, Game Theory for Applied Economists
(Princeton University Press, 1992)
Other useful sources:
Ken Binmore, Essays on the
Foundations of Game Theory
(Basil Blackwell, 1990)
Ken
Binmore, Playing
for Real
(Oxford University Press, 2007)
David
M. Kreps, A Course in Microeconomic
Theory
(Princeton University Press, 1990)
David
M. Kreps, Game Theory and Economic Modelling
(Oxford University Press, 1990)
Jean-Jacques Laffont and David Martimort, The Theory of Incentives
(Princeton University Press, 1990)
Jean-Jacques
Laffont and Jean Tirole, A Theory of Incentives in Procurement and
Regulation
(MIT Press, 1993)
George
J. Mailath and Larry Samuelson, Repeated
Games and Reputations
(Oxford University Press, 2006)
Roger
G. Myerson, Game Theory
(Harvard University Press, 1991)
Martin
J. Osborne and Ariel Rubinstein, Bargaining
and Markets
(Academic Press, 1990)\
Martin
J. Osborne and Ariel Rubinstein, A Course
in Game Theory
(MIT Press, 1994)
Klaus
Ritzberger, Foundations
of Non-Cooperative Game Theory
(Oxford University Press, 2002)
Jean
Tirole, The
Theory of Industrial Organization
(MIT Press, 1988)
Schedule (Homework
is due in class on Thursday, one week after being assigned):
I:
Games of Complete Information
I.1 Normal-form games (MWG chapters 7-8; Gibbons chapter 1; FT chapters 1-2)
· Tuesday, January 13: Normal-form games: Structure and
strict dominance
· Thursday, January 15: Rationalizability
and weak dominance
· Tuesday, January 20: Nash equilibrium
· Thursday, January 22: Nash
equilibrim
· Tuesday, January 27: Equilibrium Refinements
I.2 Extensive-form games (MWG
chapter 9; Gibbons chapter 2; FT chapters 3-4)
· Thursday, January 29: Extensive-form games
· Tuesday, February 3: Equilibria in
extensive-form games
· Thursday, February 5: Extensive-form equilibria
· Tuesday, February 10: Extensive-form equilibrium
refinements
I.3 Repeated Games (FT Chapter 5;
Gibbons chapters 2-3)
· Thursday, February 12: Repeated
games
· Tuesday, February 17: Repeated
games: Folk theorems
· Thursday, February 19: Repeated
games: Imperfect monitoring
· Tuesday, February 24: Generating equilibria
· Thursday, February 26: Midterm Exam
One place to start studying for this is the
midterm
from last year, or the midterm
from the previous year.
II:
Games of Incomplete Information
Lecture Notes for Information Economics
· Tuesday, March 3: Introduction
into Information Economics
· Thursday, March 5: Bayesian Nash Equilibrium
· Tuesday, March 24: Pure Strategy Bayes-Nash Equilibrium/Purification
· Thursday, March 26: First and Second Price
Auctions
· Tuesday, March 31: Job
Market Signalling
· Thursday, April 2: Signalling
Games
Homework
9
Alternative Homework 9
Cho and Kreps (1987)
Kreps and Wilson (1982)
· Tuesday, April 7: Adverse
Selection and Nonlinear Pricing
Rothschild
and Stiglitz (1972)
· Thursday, April 9: Incentive
Compatbility, Mirrlees
Characterization
· Tuesday, April
14: Mechanism
Design,
· Thursday, April
16: Vickrey-Clarke-Groves, Bilateral Trade, Expected
Externality Mechanism
· Tuesday, April
21: Moral
Hazard: Elementary Example
· Thursday, April
23:
Moral Hazard: General Model
· Final
Exam: May 8th 2009
One place to start studying for the final exams are the final exam of 2006, 2007, 2008 and the corresponding solutions of 2006, 2007 and 2008.
Final Exam
2009
Final
Exam 2009 Answer