LUISS

Advanced Microeconomics (2015-2016)

Instructor: Luca Panaccione
E-mail address: lpanaccione@luiss.it
Office hours: Thursday 11.00-12.00 or by appointment to be scheduled by e-mail

Teaching Assistant: Emanuele Brancati
E-mail address: ebrancati@luiss.it
Office hours: Wednesday 10.00-11.00 or by appointment to be scheduled by e-mail


Announcements

  • The webpage of the course is now available
  • The lecture scheduled for Thursday, March 24, is cancelled and it will be rescheduled during April.
  • The next practice class is scheduled for Wednesday, March 23.
  • The office hours scheduled for Thursday, March 24, is cancelled.
  • The Problem Set 2 is available here
  • The lecture scheduled on Thursday, April 7 is prolonged to 18.30
  • Two lectures have been scheduled for Monday, April 18 and Monday, May 2 from 16.00 to 17.30
  • The handout on the Voluntary Contribution Mechanism is available here
  • The lecture scheduled for Thursday, April 28 is postponed to Monday, May 9 from 16.00 to 17.30 (A204)
  • The full list of exercises is available here (for the solution send an email to lpanaccione@luiss.it and ebrancati@luiss.it)
  • The office hours for the first semester of the academic year are scheduled every Thursday from 11.00 to 12.00 or by appointment.

Class schedule

  • Wednesday, 14.00 – 16.30
  • Thursday, 16.30 – 18.00

Reference, Exam Rules & Topics

  • A. Mas-Colell, M.D. Whinston and J.R. Green (MWG), Microeconomic Theory, Oxford University Press, 1995
  • J.J. Laffont and D. Martimort (LM), The Theory of Incentives: The Principal-Agent Model, Princeton University Press, 2002
  • The final exam consist in a written test only
  • The mock exam is available here

    • Detailed list of topics:
      1. The Consumption Set. Competitive Budgets. (MWG 2.A-2.D)
      2. Demand Functions and Comparative Statics. (MWG 2.E)
      3. Preference Relations. Utility Function. (MWG 3.A-3.C)
      4. Utility Maximization Problem and the Indirect Utility Function (MWG 3.D)
      5. Expenditure Minimization Problem and the Expenditure Function (MWG 3.E)
      6. Relationships between Demand, Indirect Utility and Expenditure Functions (MWG 3.G)
      7. Welfare Evaluation of Economic Changes. (MWG 3.I)
      8. Production Sets and Profit Maximization (MWG 5.A-5.C)
      9. Cost Minimization (MWG 5.C-5.D)
      10. Partial Equilibrium Competitive Analysis. (MWG 10.A-10.C)
      11. Pareto Optimality and Competitive Equilibria. (MWG 10.D-10.E)
      12. Externalities and Public Goods (MWG 11.A – 11.C)
      13. Pure Exchange General Equilibrium Economies. The One-Consumer, One-Producer Economy (MWG 15.A – 15.C)
      14. The Fundamental Welfare Theorems (MWG 16.A-16.D)
      15. The Principal-Agent Model with Hidden Knowledge. (LM 2.1-2.5)
      16. The Rent Extraction-Efficiency Trade-Off (LM 2.6)
      17. Further Topics on The Principal-Agent Model with Hidden Knowledge (LM 2.7- 2.12)
      18. Contract Theory at Work (LM 2.15)
      19. The Principal-Agent Model with Hidden Action, or Moral Hazard (LM 4.1-4.2)
      20. The Trade-Off Between Limited Liability, Rent Extraction and Efficiency (LM 4.3)
      21. The Trade-Off Between Insurance and Efficiency (LM 4.4)
      22. Contract Theory at Work (LM 4.8)

Lectures

  1. Introduction to the course. Consumption set and Budget set. Introduction to the Utility Maximization Problem  (17.02.2016)
  2. Preferences and Utility. Properties of the Walrasian demand correspondence (18.02.2016)
  3. Indirect utility function. Expenditure Minimization Problem. Equivalence of UMP and EMP (24.02.2016)
  4. Expenditure function. Law of Compensated Demand. Income and substitution effect (25.02.2016)
  5. Practice Class 1 (by E. Brancati – 02.03.2016)
  6. Concavity of the Expenditure Function and Derivative of the Expenditure Function with respect to Prices. Properties of the Hicksian Demand Correspondence (02.03.2016)
  7. Roy’s Identity. Cournot and Engel Aggregation. Sltusky Equation. Normal, Inferior, and Giffen Goods (03.03.2016)
  8. Income and Substitution Effects with Initial Endowments. Production set and production plans. Returns to scale (09.03.2016)
  9. Profit Function and Supply Correspondence. Law of Supply. Cost Minimization, Conditional Factor Demand Correspondence and Cost Function (10.03.2016)
  10. Introduction to Competitive Equilibrium. Partial Competitive Equilibrium  Analysis (16.03.2016)
  11. Efficiency of Partial Competitive Equilibrium. Inefficiency of Partial Competitive Equilibrium with Excise Tax (17.03.2016)
  12. Practice Class 2 (by E. Brancati – 23.03.2016)
  13. Externalities (30.03.2016)
  14. Public Goods: The Linear Voluntary Contribution Model (06.04.2016)
  15. Public Goods: Efficiency and Equilibrium (07.04.2016)
  16. Practice Class 3 (by E. Brancati – 13.04.2016)
  17. Pure Exchange General Equilibrium Economy. The Edgeworth box (14.04.2016)
  18. Production General Equilibrium Economy. The One-Consumer, One-Producer Economy (18.04.2016)
  19. Fundamental Welfare Theorems. Introduction to the Principal Agent Model (20.04.2016)
  20. The First-Best Optimal Contract. Incentive Feasible Contracts with Adverse Selection (21.04.2016)
  21. The Second-Best Optimal Contracts. Contract Theory with Adverse Selection at Work: Nonlinear Pricing by a Monopoly, Quality and Price Discrimination (27.04.2016)
  22. Practice Class 4 (by E. Brancati – 02.05.2016)
  23. Contract Theory with Adverse Selection at Work: Financial Contracts. General Cost Function for the Agent in the PA model with Adverse Selection. Introduction to the Principal Agent Model with Moral Hazard (05.05.2014)
  24. Principal Agent Model with Moral Hazard: First Best Optimal Contract; Second Best Optimal Contract with Risk-Neutral Agent with and without Limited Liability Constraints (09.05.2016)
  25. Practice Class 5 (by E. Brancati – 11.05.2016)
  26. Contract Theory with Moral Hazard at Work: Sharecropping, Financial Contracts (12.05.2016)

Supplementary information regarding the list of topics: in addition to the general information reported in the previous sections, for the students’ convenience it is specified that the following parts are required for the exam:

  1. Propositions from Mas-Colell et al. (1995)
    • Propositions 2.E.2 and 2.E.3
    • Propositions 3.D.2 and 3.D.3 (except (iv))
    • Propositions 3.E.1, 3.E.2 (except (iv)), 3.E.3, and 3.E.4
    • Propositions 3.G.1, 3.G.3, and 3.G.4
    • Proposition 5.C.1 (except (iii) and (vii))
    • Proposition 5.C.2 (except (iii) and (vii))
    • Proposition 16.C.1
  2. Chapter 10 of Mas-Colell at al. (1995) is to be done in connection with the handout provided (“Marshall without Calculus”).
  3. Chapter 10 of Mas-Colell at al. (1995) is to be done until page 364.
  4. Chapter 15 of Mas-Colell at al. (1995) is to be done until page 529.
  5. Chapter 16 of Mas-Colell at al. (1995) is to be done until the statement of the Second Welfare Theorem and including the discussion following the proof.
  6. As for the part on “Further Topics on The Principal-Agent Model with Hidden Knowledge”, only Section 2.10 is confirmed in the final version of the program (until page 53)
  7. As for the part on “Contract Theory at Work” (with Hidden Knowledge or Adverse Selection), section 2.15.2, 2.15.3 and 2.15.4 are confirmed in the final version of the program
  8. As for the part on Moral Hazard, the program is confirmed until page 161 (Proposition 4.5 included)
  9. As for the part on “Contract Theory at Work” (with Moral Hazard), section 4.8.2 and section 4.8.4 are included in the final version of the program
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