COURSE SYLLABUS

FOR ADVANCED MICROECONOMIC THEORY II

Shanghai University of Finance and Economics

Spring, 2013

Course: Advanced Microeconomic Theory II

Instructor: Guoqiang Tian

Professor of Economics

E-mail: gtian@tamu.edu

http://econweb.tamu.edu/tian

Lectures: See announcements

Office Hours: Tuesday and Sunday 1:30-2:30 pm or by appointment

Text: The course will be mainly based on my lecture notes and will use two textbooks and a number of other readings that list in the end of each chapter of my lecture notes. The textbooks are A. Mas‑Colell, M. D. Whinston, and J. Green, Microeconomic Theory, and J. Laffont and D. Martimort, The Theory of Incentives. The lecture notes can be downloaded from my website.

Course Grades: You will be evaluated on the basis of a series of homework problems and two exams. Homework will be handed out periodically.Your grade will be calculated using the method list below.

Homework: 20%

Exam 1: 40%

Exam 2: 40%

Course Objectives: This course is a continuation of Advanced Microeconomic Theory I. It will cover topics in mainly in general equilibrium theory, welfare economics, social choice theory, public goods, externalities, optimal contract theory, and general mechanism design theory. The purpose of the course is to introduce advanced theories and analytical tools as well as the types of questions that are used and answered in each area. The topics covered in this course are important since they are either basic analytical tools that are used in many fields of economics or basic economic theories that will be needed in your future study and bring you to the frontier of theoretical research.

Prerequisites:Advanced Microeconomic Theory I

Tentative Topics Outline:

The lectures are divided into four parts.

Part I.Review of modern economics and mathematics as well as partial equilibrium theory: Nature and role of modern economics, the standard Analytical framework of modern economics, key assumptions commonly adopted in microeconomics, partial equilibrium theory, theory of markets, perfect competition, monopoly, monopolistic competition, oligopoly, monopsony, roles of mathematics, language and methods of mathematic, continuity and concavity of functions, separating hyperplane theorem, unconstrained and constrained optimization, correspondences (point to set mappings), fixed point theorems, KKM lemma, maximum theorem.

Readings: Mathematical Appendix of Mas‑Colell, Whinston, and Green, and Chapters 1 and 6 of my lecture notes.

Part II. General Equilibrium Theory and Social Welfare: Perfectly competitive markets, exchange economies, general equilibrium with production, equilibrium with transfer payments, and existence, uniqueness, and stability of general equilibrium, existence of equilibrium of abstract economy, Pareto efficiency, the First and Second Theorems of Welfare Economics, economic core, welfare functions, characterizations of efficient social outcomes, social choice rules, Arrow's impossibility theorem, and general equilibrium under uncertainty.

Readings: Chapters 10, 15‑18, and 21 of Mas‑Colell, Whinston, and Green, and Chapters 7-10 of my lecture notes.

Part III Externalities and Public Goods: Consumption externality (preference externality), production externality, competitive equilibrium with externalities, Pigovian taxes, voluntary negotiation a la Coase, compensatory tax/subsidy, creating a missing market with property right, public goods, efficient provision of public goods, Lindahl equilibrium, and free-rider problem.

Readings: Chapter 11 in Mas‑Colell, Whinston, and Green, Chapters 11-12 in my lecture notes.

Part IV. Information, Incentives, and Mechanism Design: The optimal contract theory, principal‑agent model, hidden action, moral hazard, adverse selection, signaling, contract theory, incentives and information of an economic system, economic mechanism design, implementation in Nash equilibrium and in Bayesian equilibrium, truth telling and dominant mechanism, the pivot mechanism, optimal dominant mechanisms, and the revelation principle.

Readings: Chapters 1-5 of Laffont and Martimort, Chapters 13-14 and Chapter 23 of Mas‑Colell, Whinston, and Green, andChapters 13-15of my lecture notes.