Download Econ XXX: Microeconomic Analysis

Econ 411: Advanced Microeconomics
Course Outline
Course Instructor: Mushtaq A. Khan
Office: Room 251
Telephone Extension: 8078
Email: [email protected]
Office Hours: Tuesdays and Thursdays, 12:30 – 02:00 or by appointment
Objective:
This course is intended to provide an introduction to advanced microeconomic theory in the light
of cotemporary thoughts, primarily for senior level undergraduate and first year graduate
students. Attention will be given to general equilibrium theory and applications, welfare
economics, and the economics of choice under uncertainty.
Prerequisites:
A working knowledge of undergraduate microeconomic theory (Intermediate Microeconomic) is
required. Abilities to use techniques of mathematical optimization and the method of comparative
statics are necessary.
Required Readings:
Silberberg, E., and Wing Suen (2000). The Structure of Economics: A Mathematical Analysis,
Third edition, McGraw-Hill.
Varian, Hal (1992). Microeconomic Analysis, Third edition, W.W. Norton.
McKenna, C.J.(1986). The Economics of Uncertainty, Oxford University Press.
Layard, P.R.G., and A.A. Walters (1988). Microeconomic Theory, International Edition,
McGraw-Hill.
Additional Readings:
Jehle, G.A., and Philip J. Reny (2000). Advanced Microeconomic Theory, Second edition,
Addison Wesley.
Mas-Colell, A, Whinston, M.D., Green, J.R. (1995). Microeconomic Theory, Oxford University
Press.
Kreps, David M. (1990). A Course in Microeconomic Theory, Princeton University Press.
*Friedman, M. and L. Savage, “The utility Analysts of Choices Involving Risk”, Journal of
political Economy, 56 (1948): 279-304.
Holthausen, Duncan M., “Hedging and the Competitive Firm Under Price Uncertainty”, The
American Economic Review, Vol. 69, No. 5. (Dec., 1979), pp. 989-995.
Lapan, Harvey, Giancarlo Moschini, and Steven D. Hanson, “Production, Hedging, and
Speculative Decisions with Options and Futures Markets”, American Journal of
Agricultural Economics, Vol. 73, No. 1. (Feb., 1991), pp. 66-74.
Aradhyula, Satheesh V. and E. Kwan Choi, “Production, Hedging, and Speculative Decisions
with Options and Futures Markets: Comment”, American Journal of Agricultural
Economics, Vol. 75, No. 3. (Aug., 1993), pp. 745-747.
Ahsan, Syed M., Ali A. G. Ali, and N. John Kurian, “Toward a Theory of Agricultural
Insurance”, American Journal of Agricultural Economics, Vol. 64, No. 3. (Aug., 1982), pp.
520-529.
Nelson, Carl H., and Edna T. Loehman, “Further toward a Theory of Agricultural Insurance”,
American Journal of Agricultural Economics, Vol. 69, No. 3. (Aug., 1987), pp. 523-531.
Paris, Quirino, “Long-Run Comparative Statics under Output and Land Price Uncertainty”,
American Journal of Agricultural Economics, Vol. 70, No. 1. (Feb., 1988), pp. 133-141.
Meyer, Jack, and Lindon J. Robison, “The Aggregate Effects of Risk in the Agricultural Sector”,
American Journal of Agricultural Economics, Vol. 73, No. 1. (Feb., 1991), pp. 18-24.
Flacco, Paul R., and Douglas M. Larson, “Nonparametric Measures of Scale and Technical
Change for Competitive Firms under Uncertainty”, American Journal of Agricultural
Economics, Vol. 74, No. 1. (Feb., 1992), pp. 173-176.
Brunk, G. G., “A Test of the Friedman-Savage Gambling Model”, Quarterly Journal of
Economics, (May 1981): 341-348.
*Ehrlich, I. and G. S. Becker, “Market Insurance, Self-Insurance, and Self-Protection”, Journal of
Political Economy, 82 (1972): 623-648.
Chang, Y. M. and I. Ehrlich, “Insurance, Protection from Risk, and Risk-Bearing”, Canadian
Journal of Economics (August 1985): 574-586.
*Pauly, M. V., “Overinsurance and the Public provision of Insurance: The Role of Moral Hazard
and Adverse Selection”, Quarterly Journal of Economics, 88 (1974): 44-54.
*Routhchild, M. and J. Stiglitz, “Equilibrium in Competitive Insurance Markets: An Essay on the
Economics of Imperfect Competition”, Quarterly Journal of Economics, 90 (November
1976): 629-649.
*Schmitz, A., H. Shalit and S. J. Turnovsky, "Producer Welfare and the Preference for Price
Stability", American Journal of Aqricultural Economics, (1981): 158-160.
*Sandmo, A., "On the Theory of the Competitive Firm under Price Uncertainty", American
Economic Review, (March 1971): 65-71.
*Ishii, Y., "On the Theory of the Competitive Firm under Price Uncertainty: Note", American
Economic Review, (September 1977): 768-769.
Batra, R. and A. Ullah, "Competitive Firm and the Theory of Input Demand under Uncertainty",
Journal of Political Economy, (June 1974): 537-548.
*Leland, H. E., "Saving and Uncertainty: The Precautionary Demand for Saving", Quarterly
Journal of Economics, 82 (1968): 465-473.
*Sandmo, A., "The Effect of Uncertainty on Saving Decisions", Review of Economic Studies, 37
(1970): 353-360.
Dreze, J. H., "Consumption Decisions under Uncertainty”, Journal of Economic Theory, 5
(1972): 308-335.
*Chang, Y. M. and I. Ehrlich, “On the Economics of Compliance with the Minimum Wage Law",
Journal of Political Economy, 93 (January 1985): 84-91.
Chang, Y. M., "Noncompliance Behavior of Risk-Averse Firms under the Minimum Wage Law",
Public Finance Quarterly, 20 (July 1992): 390-401.
*Stolper, W. R., and P. A. Samuelson, “Protection and Real Wages”, Review of Economic
Studies, 9 (1941): 58-73.
Jones, R. W., “The Structure of Simple General Equilibrium Models”, Journal of political
Economy, 73 (1965): 557 -572.
Mayer, W., “Short-Run and Long-Run Equilibrium for a Small Open Economy”, Journal of
Political Economy, 82 (1974): 955-967.
Jones, R. W., “Distortions in Factor Markets and the General Equilibrium Model of Production”,
Journal of Political Economy, 79 (1971): 437-459.
Harberger, A. C., “Three Basic Postulates for Applied Welfare Economics: An Interpretive
Essay”, Journal of Economic Literature, 9 (1971); 785-797.
Baumol W. and Bradford, D., “Optimal Departures from Marginal Cost Pricing”, American
Economic Review, 69 (1970): 256-283.
Rabin, M. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem." Econometrica
68, no. 5 (2000): 1281-92.
Hirshleifer, J., and J. Riley. The Analytics of Uncertainty and Information. Cambridge University
Press, 1992, Chapter 5.
Hart, O., and B. Holmstrom. "The Theory of Contracts." In T. Bewley (ed.), Advances in
Economic Theory -- Fifth World Congress. Cambridge University Press, 1987.
Lectures:
28 sessions of 100 minutes each.
Grading:
Quizzes (2)
Midterm exam
Assignments (4)
Final exam
10%
30%
20%
40%
Session Schedule: Tentative schedule of the course is given below:
Sessions
1-3
Topics
Readings
General Equilibrium: Linear and Non-linear Models, Fixed
Coefficient Technology, Duality Analysis in General
Equilibrium, Contract Curve and Production Possibilities
Frontier
Varian Ch. 17, 18.
Silberberg & Suen Chs. 15, 16.
Layard & Walters Ch. 2.
Mayer
4-7
The Stolper-Samuelson Theorem, The Rybcznski Theorem, Pure Varian Ch. 21.
Exchange Model of General Equilibrium, The Core of an
Silberberg & Suen Chs. 15, 16.
Exchange Economy, Walrasian Competitive Adjustment
Layard & Walters Ch. 2.
Mechanism, Existence and Stability of Walrasian Equilibria
Stolper and Samuelson
Mayer
7-9
10-11
Pareto Optimality in Production and Consumption, Overall
Pareto Optimality, The Efficiency of Perfect and Imperfect
Competition, External Economies and Diseconomies in
Production and Consumption
Varian Ch. 21.
Welfare: Measurement of Welfare Change, Optimal Pricing to
Maximize Social Welfare
Varian Ch. 22.
Silberberg & Suen Chs. 15, 16.
Layard & Walters Ch. 2.
Silberberg & Suen Ch. 17.
Layard & Walters Ch. 1.
12-14
15
16-17
Public Goods: Efficient Provision, Demand Revealing
Mechanism
Varian Ch. 23, 24.
Externalities: Solution, Pigovian Taxes, Missing Markets,
Property Rights, Compensation Mechanism, Efficiency
Conditions
Layard & Walters Chs. 3.
Silberberg & Suen Ch. 17.
Midterm
The Expected Utility Hypothesis, The Expected Utility
Theorems
Varian Ch. 11.
Mckenna Chs. 1, 2, 3.
Silberberg & Suen Ch. 13.
Friedman and Savage
18-20
Attitudes Toward Risk, The Measurement of Risk Aversion,
Risk Shedding and Risk Pooling, Risk Bearing
Varian Ch. 11.
Mckenna Ch. 3.
Silberberg & Suen Ch. 13.
Ehrlich and Becker
21-22
Demand for Protection and Insurance, Moral Hazard and
Adverse Selection
Varian Ch. 11.
Mckenna Chs. 6, 7.
Silberberg & Suen Ch. 13.
Pauly
Routhchild
23-25
Theory of Firm under Uncertainty, Production Uncertainty
Varian Ch. 20.
Mckenna Chs. 4, 5.
Silberberg & Suen Ch. 13.
Sandmo
Ishii
26-28
Price and Cost Uncertainty, Consumption and Saving Decisions Varian Ch. 20.
under Uncertainty
Mckenna Chs. 4, 5.
Silberberg & Suen Ch. 13.
Sandmo
Leland
Final Exam