- prerequisites economics: preferences (completeness, transitivity)
- Voting, Condorcet paradox, Borda count
- properties of Arrows’ theorem
- Arrow’s impossibility theorem
- reading: cite:jehle2001advanced ch. 6.1-6.2
- prerequisites economics: Leontief preferences, representation of preferences by a utility function, utility functions
- prerequisites mathematics: maximization subject to equality constraint; continuity, monotonicity, linearity and concavity of real functions
- domain restrictions: single peaked preferences
- cardinal utility: utilitarianism, Rawls
- Outlook: manipulability and Gibbard Satterthwaite theorem
- reading: cite:jehle2001advanced ch. 6.3-6.5
- prerequisites economics: consumer problem (utility maximizing consumption choice subject to budget constraint), marginal rate of substitution
- prerequisites mathematics: theorem of the maximum, Weierstrass extreme value theorem, quasi-concavity of real functions, compactness of a set
- first fundamental theorem of welfare economics
- Edgeworth box
- policies in the light of the fundamental theorems of welfare economics
- reading cite:hayek1945use, cite:jehle2001advanced ch. 5.1-5.2
- prerequisites maths: discrete probability distributions, expected value of a discrete random variable, concavity and convexity of real functions
- expected utility theorem
- risk preferences
- reading: cite:mas1995microeconomic ch. 6.A-6.C (or cite:jehle2001advanced ch. 2.4)
- prerequisites economics: static games of complete information, mixed strategies, Nash equilibrium
- prerequisites maths: probability distributions (discrete and continuous), expected value of a random variable
- Bayes’ rule, Venn diagram
- examples for tests/signals and belief updating
- games of incomplete information
- Bayesian Nash equilibrium
- examples (public good, poker, jury voting)
- reading: ch. 7.2 cite:jehle2001advanced
- prerequisites maths: inverse functions and their derivative, linear differential equation of first order
- relevance of auctions
- 4 standard auctions
- symmetric, strictly increasing equilibrium in first price auction with uniformly distributed values
- Vickrey auction
- reading: ch.1 section 1.1 cite:klemperer2004auctions, ch. 9.1 and 9.2 in cite:jehle2001advanced
- envelope theorem
- using revenue equivalence to solve for equilibria in auctions (e.g. all pay auction)
- Appendix 1.A of ch.1 in cite:klemperer2004auctions (or ch. 9.3 in cite:jehle2001advanced)
- robustness to collusion vs. robustness to informational assumptions
- good auction design: stimulate entry and fight collusion
- knock out auction as collusive device
- example behavioral bidding (embarrassment from overbidding)
- (almost) common value auction
- optional background reading: cite:mcafee1987auctions, ch. 1 to 4 in cite:klemperer2004auctions
- revenue maximization by reserve price -> inefficiency due to market power
- optional background reading: cite:mcafee1987auctions, ch. 1 to 4 in cite:klemperer2004auctions
- asymmetric info can create market incompleteness
- countermeasures to complete the market
- reading: p.115-122 in cite:einav2011selection, cite:Ake70
- prerequisites game theory: game trees, subgame perfect Nash equilibrium
- definition, simple discrete examples (market entry games)
- example: behavior based price discrimination, privacy and social pressure
- reading: ch. 9.C up to p. 288 in cite:mas1995microeconomic (alternative sources: ch. 4.1 in cite:gibbons1992primer but note that he defines “perfect Bayesian equilibrium” differently from the lecture; ch. 7.3.6 and 7.3.7 in cite:jehle2001advanced cover parts of the lecture but also additional topics)
- optional background reading: cite:&daughety2010public
- discrete signaling
- job market signaling
- simple refinement
- effect of taxes
- reading: ch. 13.C in cite:mas1995microeconomic
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