EC 209 Microeconomics III Fall 2003 Tue., Thu. 1 - 2:20, Robinson Hall 301

Instructor: Rajiv Vohra Office: Robinson Hall 105  Extension: x 3-3030  Office Hours: Tue., Thu., 3:00 - 4:00 p.m.  Email: Rajiv_Vohra@brown.edu

Textbook:
Microeconomic Theory by A. Mas-Colell, M. Whinston and J. Green, Oxford University Press, 1995.

Evaluation:
Class presentation and a take-home final exam.

Course Outline:
Market failure is the common theme connecting various parts of this course. The objective is to study the most common reasons for market failure (incomplete information, incomplete markets, public goods, increasing returns), to derive necessary conditions for efficiency, and to study mechanism design or implementation as a general approach for dealing with the issue of incentives.

Economies with Public Goods
Pareto optimality and Lindahl equilibrium. The free rider problem defined in terms of the inefficiency of Nash equilibria of a voluntary contributions game. Necessary conditions for optimality (extension of second welfare theorem), Lindahl equilibrium. The `core' and coalitional deviations.

SLIDES: [view], [print]
Chapter 11.
Foley, D., Lindahl's Solution and the Core of an Economy, Econometrica, 38,(1970), 66-72.
Ray, D. and R. Vohra, Coalitional Power and Public Goods, Journal of Political Economy, 109, 1355-1384 (2001). SLIDES: [view], [print]

Solving the Free-Rider Problem and Mechanism Design
The Clarke-Groves scheme, mechanism design, the Gibbard-Satterthwaite Theorem.

Chapter 23.
Benoit, J-P, The Gibbard-Satterthwaite Theorem: A Simple Proof, Economics Letters, 69, (2000), 319-322.

Nash Implementation
Maskin's theorem, and an illustration through a solution to the free-rider problem. Nash implementation of Walrasian and Lindahl allocations.

Chapter 23.
Repullo, R., A Simple Proof of Maskin's Theorem on Nash Implementation, Social Choice and Welfare, (1987), 4, 39-41.
Walker, M., A Simple Incentive Compatible Scheme for Attaining Lindahl Allocations, Econometrica, (1981), 49, 65-71.

General Equilibrium Under Uncertainty
Efficiency notions, Arrow-Debreu Equilibrium, Incomplete Markets, Rational Expectations Equilibrium

Holmstrom, B. and R. Myerson, Efficient and Durable Decision Rules with Incomplete Information, Econometrica, 51, (1983), 1799-1819.
Chapter 19.

Incomplete Information and the Core
Efficiency, notions of the core, incentive compatibility, core convergence.

Wilson, R., Information, Efficiency and the Core of an Economy, Econometrica, 46, (1978), 807-816.
Vohra, R., Incomplete Incentive Compatibility and the Core, Journal of Economic Theory, 86, (1999), 123-147.
F. Forges, E. Minelli and R. Vohra, Incentives and the Core of an Exchange Economy, Brown University Working Paper (2000).
R. Serrano, R. Vohra and O. Volij, On the Failure of Core Convergence in Economies with Asymmetric Information, Econometrica, 69, (2001), 1685-1696.
SLIDES on the ex ante core: [view], [print]
SLIDES on the interim stage

Virtual Implementation
Virtual Implementation in complete information and in incomplete information environments.

Abreu, D. and A. Sen, Virtual Implementation in Nash Equilibrium, Econometrica, (1991), 59, 997-1021.
Abreu D. and H. Matsushima, Virtual Implementation in Iteratively Undominated Strategies: Complete Information, Econometrica, (1992), 60, 993-1008.
Serrano, R. and R. Vohra, A Characterization of Virtual Bayesian Implementation, Brown University Working Paper (2002).