Table of Contents
Part I: INDIVIDUAL DECISION-MAKING
Introduction to Part I
1. Preference and Choice
A. Introduction
B. Preference Relations
C. Choice Rules
D. The Relationship between Preference Relations and Choice Rules
Exercises
2. Consumer Choice
A. Introduction
B. Commodities
C. The Consumption Set
D. Competitive Budgets
E. Demand Functions and Comparartive Statics
F. The Weak Axiom of Revealed Preference and the Law of Demand
Exercises
3. Classical Demand Theory
A. Introduction
B. Preference Relations: Basic Properties
C. Preference and Utility
D. The Utility Maximization Problem
E. The Expenditure Minimization Problem
F. Duality: A Mathematical Introduction
G. Relationships between Demand, Indirect Utility, and Expenditure Functions
H. Integrability
I. Welfare Evaluation of Economic Changes
J. The Strong Axiom of Revealed Preference
Appendix: Continuity and Differentiability Properties of Walrasian Demand
Exercises
4. Aggregate Demand
A. Introduction
B. Aggregate Demand and Aggregate Wealth
C. Aggregate Demand and the Weak Axiom
D. Aggregate Demand and the Existence of a Representative Consumer
Appendix: Regularizing Effects of Aggregation
Exercises
5. Production
A. Introduction
B. Production Sets
C. Profit Maximization and Cost Minimization
D. The Geometry of Cost and Supply in the Single Output Case
E. Aggregation
F. Efficient Production
G. Remarks on the Objectives of the Firm
Appendix: The Linear Activity Model
Exercises
6. Choice under Uncertainty
A. Introduction
B. Expected Utility Theory
C. Money Lotteries and Risk Aversion
D. Comparison of Payoff Distributions in Terms of Return and Risk
E. State Dependent Utility
F. Subjective Probability Theory
Exercises
Part II: GAME THEORY
Introduction to Part II
7. Basic Elements of Non-Cooperative Games
A. Introduction
B. What is a Game?
C. The Extensive Form Representation of a Game
D. Strategies and the Normal Form Representation of a Game
E. Randomized Choices
Exercises
8. Simultaneous-Move Games
A. Introduction
B. Dominant and Dominated Strategies
C. Rationalizable Strategies
D. Nash Equilibrium
E. Games of Incomplete Information: Bayesian Nash Equilibrium
F. The Possibility of Mistakes: Trembling-Hand Perfection
Appendix: Existence of Nash Equilibrium
Exercises
9. Dynamic Games
A. Introduction
B. Sequential Rationality, Backwards Induction, and Subgame Perfection
C. Sequential Rationality and Out-of-Equilibrium Beliefs
D. Reasonable Beliefs, Forward Induction, and Normal Form Refinements
Appendix A: Finite and Infinite Horizon Bilateral Bargaining
Appendix B: Extensive Form Trembling-Hand Perfection
Exercises
Part III: MARKET EQUILIBRIUM AND MARKET FAILURE
Introduction to Part III
10. Competitive Markets
A. Introduction
B. Pareto Optimality and Competitive Equilibria
C. Partial Equilibrium Competitive Analysis
D. The Fundamental Welfare Theorems in a Partial Equilibrium Context
E. Welfare Analysis in the Partial Equilibrium Model
F. Free-Entry and Long-Run Competitive Equilibria
G. Concluding Remarks on Partial Equilibrium Analysis
Exercises
11. Externalities and Public Goods
A. Introduction
B. A Simple Bilateral Externality
C. Public Goods
D. Multilateral Externalities
E. Private Information and Second-Best Solutions
Appendix: Non-Convexities and the Theory of Externalities
Exercises
12. Market Power
A. Introduction
B. Monopoly Pricing
C. Static Models of Oligopoly
D. Repeated Interaction
E. Entry
F. The Competitive Limit
G. Strategic Precommitments to Affect Future Competition
Appendix A: Infinitely Repeated Games and the Folk Theorem
Appendix B: Strategic Entry Deterrence and Accommodation
Exercises
13. Adverse Selection, Signalling, and Screening
A. Introduction
B. Informational Asymmetries and Adverse Selection
C. Signalling
D. Screening
Appendix: Reasonable-Beliefs Refinements in Signalling Games
Exercises
14. The Principal-Agent Problem
A. Introduction
B. Hidden Actions (Moral Hazard)
C. Hidden Information (and Monopolistic Screening)
D. Hidden Actions and Hidden Information: Hybrid Models
Appendix A: Multiple Effort Levels in the Hidden Action Model
Appendix B: A Formal Solution of the Principal-Agent Problem with Hidden Information
Exercises
Part IV: GENERAL EQUILIBRIUM
Introduction to Part IV
15. General Equilibrium Theory: Some Examples
A. Introduction
B. Pure Exchange: The Edgeworth Box
C. The One Consumer-One Producer Economy
D. The 2x2 Production Model
E. General versus Partial Equilibrium Theory
Exercises
16. Equilibrium and Its Basic Welfare Properties
A. Introduction
B. The Basic Model and Definitions
C. The First Fundamental Theorem of Welfare Economics
D. The Second Fundamental Theorem of Welfare Economics
E. Pareto Optimality and Social Welfare Optima
F. First-Order Conditions for Pareto Optimality
G. Some Applications
Appendix: Technical Properties of the Set of Feasible Allocations
Exercises
17. The Positive Theory of Equilibrium
A. Introduction
B. Equilibrium: Definitions and Basic Equations
C. Existence of Walrasian Equilibrium
D. Local Uniqueness and the Index Theorem
E. Anything Goes: The Sonnenschein-Mantel-Debreu Theorem
F. Uniqueness of Equilibria
G. Comparative Statics Analysis
H. Tatonnement Stability
I. Large Economies and Non-Convexities
Appendix A: Characterizing Equilibrium through Welfare Equations
Appendix B: A General Approach to the Existence of Walrasian Equilibrium
Exercises
18. Some Foundations for Competitive Equilibria
A. Introduction
B. Core and Equilibria
C. Non-Cooperative Foundations of Walrasian Equilibria
D. The Limits to Redistribution
E. Equilibrium and the Marginal Productivity Principle
Appendix: Cooperative Game Theory
Exercises
19. General Equilibrium under Uncertainty
A. Introduction
B. A Market Economy with Contingent Commodities: Description
C. Arrow-Debreu Equilibrium
D. Sequential Trade
E. Asset Markets
F. Incomplete Markets
G. Firm Behavior in General Equilibrium Models under Uncertainty
H. Imperfect Information
Exercises
20. Equilibrium and Time
A. Introduction
B. Intertemporal Utility
C. Intertemporal Production and Efficiency
D. Equilibrium: The One-Consumer Case
E. Stationary Programs, Interest Rates, and Golden Rules
F. Dynamics
G. Equilibrium: Several Consumers
H. Overlapping Generations
I. Remarks on Non-Equilibrium Dynamics: Tatonnement and Learning
Exercises
Part V: WELFARE ECONOMICS AND INCENTIVES
Introduction to Part V
21. Social Choice Theory
A. Introduction
B. A Special Case: Social Preferences over Two Alternatives
C. The General Case: Arrow's Impossibility Theorem
D. Some Possibility Results: Restricted Domains
E. Social Choice Functions
Exercises
22. Elements of Welfare Economics and Axiomatic Bargaining
A. Introduction
B. Utility Possibility Sets
C. Social Welfare Functions and Social Optima
D. Invariance Properties of Social Welfare Functions
E. The Axiomatic Bargaining Approach
F. Coalitional Bargaining: The Shapley Value
Exercises
23. Incentives and Mechanism Design
A. Introduction
B. The Mechanism Design Problem
C. Dominant Strategy Implementation
D. Bayesian Implementation
E. Participation Constraints
F. Optimal Bayesian Mechanisms
Appendix A: Implementation and Multiple Equilibria
Appendix B: Implementation in Environments with Complete Information
Exercises
Mathematical Appendix
A. Introduction
B. Homogeneous Functions and Euler's Formula
C. Concave and Quasiconcave Functions
D. Matrices: Negative (Semi)Definiteness and Other Properties
E. The Implicit Function Theorem
F. Continuous Functions and Compact Sets
G. Convex Sets and Separating Hyperplanes
H. Correspondences
I. Fixed Point Theorems
J. Unconstrained Maximization
K. Constrained Maximization
L. The Envelope Theorem
M. Linear Programming
N. Dynamic Programming