Microeconomics of Market Failures / Edition 1

Microeconomics of Market Failures / Edition 1

by Bernard Salani?
     
 

ISBN-10: 0262194430

ISBN-13: 9780262194433

Pub. Date: 10/10/2000

Publisher: MIT Press

In this book Bernard Salanié studies situations where competitive markets fail to achieve a collective optimum and the interventions used to remedy these so-called market failures. He includes discussions of theories of collective decision making, as well as elementary models of public economics and industrial organization. Although public economics is

Overview

In this book Bernard Salanié studies situations where competitive markets fail to achieve a collective optimum and the interventions used to remedy these so-called market failures. He includes discussions of theories of collective decision making, as well as elementary models of public economics and industrial organization. Although public economics is traditionally defined as the positive and normative study of government action over the economy, Salanié confines himself to microeconomic aspects of welfare economics; he considers taxation and the effects of public spending only as potential remedies for market failures. He concludes with a discussion of the theory of general equilibrium in incomplete markets.

Product Details

ISBN-13:
9780262194433
Publisher:
MIT Press
Publication date:
10/10/2000
Edition description:
New Edition
Pages:
238
Product dimensions:
6.10(w) x 9.10(h) x 0.70(d)
Age Range:
18 Years

Table of Contents

1Introduction1
1.1The Fundamental Theorems1
1.1.1The Pareto Optimum2
1.1.2General Equilibrium2
1.1.3The Two Fundamental Welfare Theorems3
1.2Return to the Hypotheses6
1.3The Government's Role8
Bibliography10
ICollective Choice11
2The Aggregation of Preferences13
2.1Arrow's Theorem17
2.2Noncomparable Cardinal Preferences22
2.3Comparable Ordinal Preferences23
2.4Comparable Cardinal Preferences24
2.5Conclusion25
2.6Appendix A: Proof of Arrow's Theorem26
2.7Appendix B: Theories of Justice27
2.7.1Utilitarianism28
2.7.2Rawls's Difference Principle29
2.7.3Recent Developments31
2.7.4Nozick's Historical Approach33
2.7.5Conclusion34
Bibliography35
3Cost-Benefit Analysis37
3.1Measures of Welfare37
3.2First-Best42
3.3Second-Best44
3.3.1Shadow Prices44
3.3.2Nonmarket Goods45
3.3.3Incomplete Markets46
Bibliography46
4Implementation49
4.1Dominant Strategy Equilibrium50
4.2Nash Equilibrium52
4.3Refinements of the Nash Equilibrium57
4.4Bayesian Equilibrium58
4.5Appendix A: Proof of the Gibbard-Satterthwaite Theorem59
4.6Appendix B: Proof of Maskin's Theorem63
Bibliography65
IIPublic Economics67
5Public Goods69
5.1The Optimality Condition70
5.2Implementing the Optimum72
5.2.1The Subscription Equilibrium73
5.2.2Voting Equilibrium73
5.2.3The Lindahl Equilibrium74
5.2.4Personalized Taxation75
5.2.5A Planning Procedure76
5.2.6The Pivot Mechanism78
5.3The Property of Public Goods83
5.4The Importance of the Free-Rider Problem85
5.5Local Public Goods86
5.6Appendix: Characterization of VCG Mechanisms86
Bibliography88
6External Effects89
6.1The Pareto Optimum90
6.2Implementing the Optimum92
6.2.1The Competitive Equilibrium92
6.2.2Quotas94
6.2.3Subsidies for Depollution94
6.2.4The Rights to Pollute95
6.2.5Taxation97
6.2.6The Integration of Firms97
6.2.7A Compensation Mechanism98
6.3Must Prices or Quantities Be Regulated?100
6.4Coase's Theorem102
Bibliography104
7Nonconvexities107
7.1Consequences of Nonconvexities107
7.1.1Nonconvex Preferences107
7.1.2Nonconvex Sets of Production109
7.2Convexification by Numbers112
7.3Regulation of Natural Monopolies113
7.3.1Marginal Cost Pricing116
7.3.2Second-Best Pricing of Regulated Firms117
7.4Deregulation124
Bibliography125
IIIIndustrial Organization127
8General Equilibrium of Imperfect Competition131
8.1Three Difficulties131
8.1.1The Firms' Objectives132
8.1.2Price Normalization133
8.1.3The Quasi-concavity of Profit133
8.2Subjective Demand Equilibrium134
8.3Objective Demand Equilibrium135
8.3.1Equilibrium in Quantities135
8.3.2Equilibrium in Prices136
8.4Conclusion137
Bibliography138
9Prices and Quantities141
9.1Monopoly141
9.1.1Social Distortion143
9.1.2How to Avoid Distortions144
9.1.3The Case of Durable Goods146
9.2Price Discrimination148
9.2.1First Degree148
9.2.2Second Degree148
9.2.3Third Degree150
9.3Oligopoly150
9.3.1Cournot's Oligopoly151
9.3.2The Bertrand Equilibrium152
9.3.3Sketches of Resolutions of the Paradox153
9.3.4Strategic Substitutes and Complements157
Bibliography158
10Product Choice161
10.1Definitions161
10.1.1A Model of Vertical Differentiation162
10.1.2A Model of Horizontal Differentiation162
10.2Differentiation and Monopoly163
10.2.1Optimal Quality Choice163
10.2.2Nonobservable Quality165
10.2.3Choice of Number of Products to Introduce166
10.3Differentiation and Oligopoly167
10.3.1The Maximal Differentiation Principle167
10.3.2Entry and Number of Products170
Bibliography177
11Long-Term Entry and Competition179
11.1Sustainability and Contestability179
11.2Preemption183
11.3Limit Price and Predation186
11.3.1Limit Price186
11.3.2Predation187
11.4Research and Development188
Bibliography191
12Vertical Relations193
12.1Double Marginalization194
12.2Justifications of Vertical Constraints197
12.2.1Retailer Effort Incentive197
12.2.2Price Discrimination198
12.2.3Tied Sales198
12.2.4Reduction of Price Competition199
12.3Comparison of Different Practices199
12.4Elements of Law201
Bibliography202
IVIncomplete Markets203
13Elements of the Theory of Incomplete Markets205
13.1The General Framework205
13.2Existence of Equilibrium210
13.3Inefficiency of Equilibrium211
13.4Equilibria with Production213
13.5Application to International Trade215
13.6Conclusion216
13.7Appendix: Nominal Assets216
Bibliography218
Index221

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