Advanced Microeconomics

In this module we will cover recent developments in microeconomic theory, and some of their applications to contemporary markets and society. The focus will be on strategic decision making, information asymmetries, market competition, economic networks, economic design, market efficiency and social welfare, and the digital economy. Both theoretical developments and their applications to the study of individual behaviour, the structure of markets. Institutions will be examined using recent advances in game theory, contract theory, mechanism design. The digital economy will be analysed from a microeconomic perspective.

During the lectures we will apply economic theory to study consumer and firm strategic behaviour. We will study incentive schemes to improve the behaviour of economic agents, and the design of institutions, mechanisms, and strategies that contribute to reach outcomes with properties such as efficiency and fairness.

We will achieve this by focusing in the first part of the module on the economics of strategic behaviour, also covering some applications, followed by a second section where we will study economic design and the digital economy. The two latter areas have recently experienced substantial theoretical advances and widespread applications, and have proved to be useful for the design and implementation of initiatives directed to produce efficient outcomes and improve the performance of individuals, institutions, and markets.

The material we will study will explore applications of the theory to analyse contemporary problems. We will focus on the design of markets, making use of game theory and economic theory to engineer institutions where agents converge to get involved in exchanges. As the information age is changing the way individuals, firms, governments, markets and society function, we will also explore the economic implications of the Internet, digital technologies, artificial intelligence, and technological advances in general. Technological advancements are making significant amounts of information accessible, lowering transaction costs, creating proxies of trust, and forming networks, among other features. We will put particular emphasis on the digital economy, digital markets and applications to financial intermediation.

Topics

• Review of concepts
• Non-cooperative Game Theory
• Cooperative Games
• Economics of Networks
• Two-sided Platforms
• Mechanism Design
• Market design: Auctions
• Market design: Matching markets
• Digital economy

Main reading list

General

(OR) Osborne, Martin J, A. Rubinstein (2020) Models in Microeconomic Theory (’She' Edition). Open Book Publishers. (Available online via DMU library and on the author’s website for free)

(Ch) Church, J. R. (2000) Industrial Organization: A Strategic Approach. McGRAW-Hill. (Available online via DMU library and legally available for free online)

(Sh) Oz Shy (2008) How to Price. Cambridge University Press. (Available online via DMU library)

(V) Varian, H. R. (2014) Intermediate microeconomics: a modern approach. Ninth edition. New York: W.W. Norton & Company.

(R) Riley, J. G. (2012) Essential microeconomics. Cambridge: Cambridge University Press. [Advanced]

(M) Mas-Colell, A., Whinston, M. D. and Green, J. R. (1995) Microeconomic theory. New York: Oxford. [Advanced]

Game Theory

(VR) Fernando Vega-Redondo (2003) Economics and the Theory of Games. Cambridge University Press. (Available online via DMU library)

(SG) Schecter, S., & Gintis, H. (2016). Game theory in action: An introduction to classical and evolutionary models. Princeton University Press. (Available online via DMU library)

(FT) Fudenberg, D. and Tirole, J. (1991) Game theory. Cambridge, Massachusetts: MIT Press. (Available online via DMU library). [Advanced]

(OR) Osborne, M. J. and Rubinstein, A. (1994) A course in game theory. Cambridge, Mass: MIT Press. (Available online via DMU library and on the author’s website for free). [Advanced]

Economic Networks

(J) Jackson, M. O. (2008) Social and economic networks. Princeton, N.J.: Princeton University Press. (Available online via DMU library). [Advanced]

(EK) Easley, D. and Kleinberg, J. (2010) Networks, Crowds, and Markets; Reasoning About a Highly Connected World. Cambridge University Press. (Available online on the author’s website for free)

Economic Design (H) Haeringer, G. (2018) Market design: auctions and matching. Cambridge, MA: MIT Press. (Available online via DMU library)

(VRN) Vulkan, N., Roth, A. E. and Neeman, Z. (eds) (2015) The handbook of market design. Oxford: Oxford University Press. (Available online via DMU library)

(K) Krishna, V. (2009). Auction theory, 2nd edition. Academic Press. (Available online via DMU library). [Advanced]

(BKS) Börgers, T., Krähmer, D., & Strausz, R. (2015). An introduction to the theory of mechanism design. Oxford University Press. (Available online via DMU library) [Advanced]