Microeconomics does not need to be a distant topic. My design of the Applied Microecnomics course (taught jointly with Javier Asensio) at the Master in Applied Research in Economics and Business of my university combines theory and discussion of empirical papers in top journals.
I paste the syllabus here. As we finish the current edition and we prepare the next one, I would most welcome suggestions of topics, references and discussion papers.
Objectives
-Learn the basic
skills to understand and be able to use the basic models and theories (old and
new) in microeconomics, to better analyze businesses and the economy.
-Use theory to ask
relevant questions to be answered with data and empirical work.
-Associate
microeconomics to some of the most pressing problems of our time: digital
revolution, climate change, inequality.
Contents
1.Optimization models of consumer and firm behavior
Utility Maximization. From preferences to demand. Demand
functions. Elasticities and consumer surplus. Income effect and substitution
effect. An exchange economy. Efficiency. The problem of endogenous, social and
changing preferences. Profit maximization and cost minimization: supply
functions and cost functions. Technology and costs. Productive efficiency.
Existence and objectives of the firm, and agency theory. Transaction costs and
incomplete contracts theories of the firm.
-Varian (2014), chapters 1-10, 14, 15, 18-23.
-Church and Ware (2000), chapter 3.
-Farber, H. (2015), Why Can’t you Find a Taxi in the
Rain and Other Labour Supply Lessons from Cab Drivers, Quarterly Journal of Economics, 130(4): 1975-2016.
-Fort, R. (2004), Inelastic Sports Pricing, Managerial and Decision Economics,
25(2): 87-94.
-Nerlove, M. (1961), Returns to Scale in the
Electricity Industry, in “Measurement in Economics”, Stanford University.
-Hausman, J.A. (1997), Valuing the Effect of
Regulation on New Services in Telecommunications, Brookings Papers on Economic Activity. Microeconomics, vol. 1997:
1-54.
-Bloom, N.; Van Reenen, J. (2007), Measuring And
Explaining Management Practices Across Firms And Countries, Quarterly Journal of Economics, Vol.
CXXII, Issue 4.
-Garicano, L. (2016), Why Organizations Fail: Models
and Cases, Journal of Economic Literature,
54(1): 137-192.
2.Welfare economics: efficiency, fairness and mechanisms of resource
allocation
Recommended
Reading (and watching):
-Varian (2014), chapters 9, 16, 33-37.
-Bowles (2004), chapters 2 & 6.
-Hindriks and Myles (2013), chapter 2.
-N. Stern (2010), Imperfections in the
Economics of Public Policy, Imperfections in Markets and Climate Change, Journal
of the European Economic Association, 8(2-3): 253-288.
-E. Ostrom (2009), Nobel Prize lecture.
-Robert Shiller’s Financial Markets
course on video at Yale University: https://oyc.yale.edu/economics/econ-252.
-Vives, X. (2016), Competition and Stability in Banking: the role of Competition Policy
and Regulation, Princeton University Press.
-Kietzmueller & Shimshak (2012),
Economic Perspectives on Corporate Social Responsibility, Journal of Economic Literature, 50(1): 51-84.
3.Basic Game theory
Definition of a Game, Dominant Strategies (examples: prisoners’ dilemma, public goods games), Nash Equilibrium (examples: Hotelling, Cournot, Bertrand), Mixed Strategies, Cooperation and Coordination Games, Risk Dominance, Repeated Games, Sequential Games. Evolutionary Game Theory with 2 players and two types.
-Varian (2014), chapters 28 & 29.
-Bowles (2004), chapter 1.
-Dixit, Skeath and Reiley (20 15), Games
of Strategy, 4th edition, Norton & Company.
-Levitt, List & Reiley (2010), What
Happens in the Field Stays in the Field: Exploring Whether Professionals Play
Minimax in Laboratory Experiments, American
Economic Review, 78(4): 1413-1434.
-Andreoni, J. (1995), Warm-Glow versus
Cold-Prickle: The Effects of Positive and Negative Framing on Cooperation in
Experiments, Quarterly Journal of
Economics, 110(1): 1-21.
4. The challenges of deciding together: social choice, institutions and
political economy in microeconomics
The Public Choice critique. Wicksell and Lindahl: the promise and limits of unanimity. Median voter theorem. Voting rules and Arrow’s impossibility theorem. Inequality and democracy: why the poor do not expropriate the rich in democracies. Lobbying and corruption. Incentives in the public sector. Transaction costs in politics and the political Coase theorem? Institutions and economics.
-Hindriks and Myles (2013), chapter 11.
-Sen (2017), Collective Choice and Social Welfare, revised edition.
-Achen and Bartels (2016), Democracy for Realists: Why Elections do not
produce responsive government, Princeton University Press.
-Acemoglu & Robinson (2012), Why Nations Fail: The Origins of Power,
Prosperity and Authority, Crown Business.
-MacLeod, W.B. (2013), Book Review of “Why Nations Fail” and
“Pillars of Prosperity,” Journal of
Economic Literature, 51(1): 116-143.
-Rodrik, D. (2020), Why does globalization fuel
populism? Economics, Culture, and The Rise of Righ-wing Populism, NBER Working
Paper, 27526.
-Bagues & Esteve-Bolart (2016),
Politicians’ Luck of the Draw: Evidence from the Spanish Christmas Lottery, Journal of Political Economy, 124(5):
1269-1294.
-Bonica, McCarty, Poole, Rosenthal
(2013), Why Hasn’t Democracy Slowed Rising Inequality? Journal of Economic Perspectives, 27(3): 103-124.
-Yermack, D. (2010), Shareholder Voting
and Corporate Governance, Annual Review of
Financial Economics, 2: 103-125.
5.Regulation of natural monopoly
From perfect competition to monopoly in partial equilibrium. Non-convexities and the welfare theorems. Definition of natural monopoly. Optimal prices for a natural monopoly. Asymmetric information and the Laffont and Tirole model. Sunk investments and the commitment problem. Regulatory capture. Liberalization and universal service. Liberalization and access prices. Vertical integration and separation. Competition for the market and yardstick competition. Natural monopoly and modern digital markets.
-Laffont and Tirole (1993), A Theory of Incentives in Procurement and Regulation, MIT Press.
-Laffont (2000), The
Political Economy of Regulation, Oxford University Press.
-Church and Ware (2000), chapters 2, 4, 22, 24-26.
-Armstrong and Sappington (2006), Regulation,
Competition and Liberalization, Journal
of Economic Literature, 44(2): 325-366.
-Estache and Wren-Lewis (2009), Toward a Theory of
Regulation for Developing Countries: Following J.J. Laffont’s lead, Journal of Economic Literature, 47(3):
729-70.
-Trillas,
F.; Montoya, M.A. (2011), Commitment and Regulatory Independence in Practice in
Latin American and Caribbean Countries, Competition
and Regulation in Network Industries, 12(1): 27-56.
-Tirole, J.
(2020), Competition and the Industrial Challenge for the Digital Age,
unpublished paper.
Departures
from the standard rationality assumptions. Prospect theory. Behavioral public
economics and behavioral industrial organization.
-Varian, H. (2014), chapter 30.
-Hindriks and Myles (2013), chapter 3.
-Dhami, S. (2016), The
Foundations of Behavioral Economic Analysis, Oxford University Press.
-Bhargawa & Loewenstein, (2015), Behavioral
Economics and Public Policy 102: Beyond Nudging, American Economic Review, 105(5): 396-401.
-Kagel & Roth (2016), Handbook of Experimental Economics, Volume 2, Princeton University
Press.
-Salganik, M.J. (2018), Bit by Bit. Social Research in
the Digital Age, Princeton University Press.
-Tirole, J. (2017), Economics for the Common Good, Princeton University Press.
-Putterman, L. (2012), The Good, the Bad and the Economy, Langdon Street Press.
-Spiegler, R. (2011), Bounded Rationality and Industrial Organization, Oxford University
Press.
-Della Vigna and Malmendier (2006), Paying not to go
to the gym, American Economic Review,
96(3): 694-719.
7. Market Power Measurement and Implications
(taught by Javier Asensio)
SCP Paraidgm and NEIO. Is market power rising?
Implications for the digital economy & labour markets.
- J. Church and R. Ware
(2000), Industrial Organization: A Strategic Approach, McGraw-Hill, Chapter 12.
P. Davis and E.Garcés
(2010), Quantitative Techniques for Competition and Antitrust Analysis,
Princeton UP, Chapter. 6.
- Genesove, D., &
Mullin, W. P. (1998). Testing static oligopoly models: conduct and cost in the
sugar industry, 1890-1914. The RAND Journal of Economics, 355-377.
- De Loecker, J., &
Eeckhout, J. (2017). The rise of market power and the macroeconomic
implications (No. w23687). National Bureau of Economic Research.
8. Entry dynamics and innovation
(taught by Javier Asensio)
Modelling entry. Estimating market power from entry
models. Entry, exit & innovation
Recommended Reading:
- P. Davis and E.
Garcés (2010) Quantitative Techniques for Competition and Antitrust Analysis,
Princeton UP. Chapter 5.
- T. Bresnahan and P.
Reiss (1991) Entry and competition in concentrated markets, Journal of
Political Economy, 99, 977-1009.
- Klepper, S. (1996).
Entry, exit, growth, and innovation over the product life cycle. The American economic
review, 562-583.
- Aghion, P., Blundell,
R., Griffith, R., Howitt, P., & Prantl, S. (2009). The effects of entry on
incumbent innovation and productivity. The Review of Economics and
Statistics, 91(1), 20-32.
- Dubois, P., De
Mouzon, O., Scott‐Morton, F., &
Seabright, P. (2015). Market size and pharmaceutical innovation. The
RAND Journal of Economics, 46(4), 844-871.
General
Bibliography
Varian, H. (1992), Microeconomic Analysis, Norton and Company. [CS(-2) E2.10Var (not on loan)]
Varian, H. (2014), Intermediate Microeconomics, 9th edition. [CS(-2) E2.10Var]
Bowles, S. (2004), Microeconomics. Behavior,
institutions and evolution. Princeton University Press. [CS(-2). E2.10 Bow]
Bowles & Halliday (2022), Microeconomics (pdf
available in Halliday’s web page)
Hindriks and Myles (2013), Intermediate Public
Economics, second edition. [CS(-2 & 0). E10.0 Hin]
Church, J. and R. Ware (2000), Industrial
Organization: A Strategic Approach, McGraw-Hill. [Can be freely downloaded
on-line:
https://works.bepress.com/jeffrey_church/23/]
Davis, P. and E. Garcés (2009), Quantitative
Techniques for Competition and Antitrust Analysis, Princeton University Press.
[CS(0) E15.232 Dav].
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