The incentive constraint of the bad type reduces to
0
ts q s .
(13.14)
As with the pooling contract, the benet of the (0, 0) option is that it somewhat
reduces the number of constraints since the incentive and participation constraints take
the same form.
12
Game Theory
Definition: Game theory is the study of strategic interactions among two or more economic actors.
Definition: A strategic decision is one that is based on the anticipation of others actions.
Definition: A simultaneous game is a game in whic
6
Producer Behavior
6.1 The Basics of Production
Definition: Production is the process by which a person, company, government, or nonprofit
agency creates a good or service that others are willing to pay for.
Definition: A final good is a good that is bou
Market Power and Monopoly
9
9.1 Sources of Market Power
Definition: Market power is a firms ability to influence the market price of its product.
Definition: A monopoly is a market served by only one firm.
Definition: A monopolist is the sole supplier and
8
Supply in a Competitive Market
8.1 Market Structures and Perfect Competition in the Short Run
1. A market is categorized by three characteristics.
a. Number of firms
b. Whether the consumer cares which company made the good
c. Barriers to entry
teaching
4
Consumer Behavior
teaching tip
This will be the first time that many of your students have seen an indifference curve. Therefore, it is
important that you take your time covering the material in this chapter. If you lose the students now,
you will never
Repeated Games
Silvana Krasteva
ECON630
Texas A&M University
April 9, 2012
Silvana Krasteva (ECON630)
Repeated Games
April 9, 2012
1 / 15
Stage Game and Repeated Game
Let = cfw_I, S, u be a simultaneous move game.
A repeated game of T + 1 periods denoted
Strategic Games: Introduction
Silvana Krasteva
ECON630
Texas A&M University
March 7, 2012
Silvana Krasteva (ECON630)
Strategic Games: Introduction
March 7, 2012
1/1
Decision Theory
Decision theory can be divided in two two large class of economic
settings
Nash Equilibrium
Silvana Krasteva
ECON630
Texas A&M University
March 21, 2012
Silvana Krasteva (ECON630)
Nash Equilibrium
March 21, 2012
1 / 26
Rationalizability as a Solution Concept
Rationalizability makes very weak predictions:
B
F
0, 0
2, 1
B
F
1,
Static Games of Incomplete Information
Silvana Krasteva
ECON630
Texas A&M University
April 9, 2013
Silvana Krasteva (ECON630)
Static Games of Incomplete Information
April 9, 2013
1 / 16
Incomplete Information
Games of Incomplete Information: players do no
Bargaining and Timing Games
Silvana Krasteva
ECON630
Texas A&M University
April 11, 2012
Silvana Krasteva (ECON630)
Bargaining and Timing Games
April 11, 2012
1 / 18
Innite dynamic games
Innite dynamic games are hard to analyze without simplifying
assumpt
Introduction to Auctions
Silvana Krasteva
ECON630
Texas A&M University
April 11, 2013
Silvana Krasteva (ECON630)
Introduction to Auctions
April 11, 2013
1 / 18
What is an action?
An auction is a mechanism used by a seller to allocate an object
to N potent
Dynamic Games of Incomplete (Imperfect)
Information
Silvana Krasteva
ECON630
Texas A&M University
April 18, 2013
Silvana Krasteva (ECON630)
Dynamic Games of Incomplete (Imperfect) Information
April 18, 2013
1 / 13
Dynamic Games of Incomplete (Imperfect) I
Dynamic Games
Silvana Krasteva
ECON630
Texas A&M University
April 2, 2012
Silvana Krasteva (ECON630)
Dynamic Games
April 2, 2012
1 / 18
Dynamic Game
Denition
A Dynamic Game is a game in which players move sequentially over time.
Dynamic Games can be:
nite
Job Market Signaling
Silvana Krasteva
ECON630
Texas A&M University
April 23, 2013
Silvana Krasteva (ECON630)
Job Market Signaling
April 23, 2013
1/1
Job Market Model
Many identical rms that can hire a worker.
Workers marginal productivity: F().
Workers ou
11
Imperfect Competition
Definition: Imperfect competition describes the market structures with characteristics between those of perfect competition and monopoly.
Definition: An oligopoly is competition among a small number of firms.
Definition: Monopolis
Supply and Demand
2
teaching tip
While much of this material will be review for most students, many may not have used supply and
demand equations before. If you take your time explaining these equations and how to solve for
equilibrium, students will mast
cient allocation x ,2 then there is no destruction of wx in achieving Pareto
ecient allocation x .
(2) If the social marginal rates of substitution are negative for any allocation
(xA , xB ) satisfying xA + xB = wx , yA + yB = wy , and the marginal equali
Wolfstetter, E., Topics in Microeconomics - Industrial Organization, Auctions, and Incentives, Cambridge Press, 1999, Chapters 8-10.
488
Chapter 14
Optimal Mechanism Design:
Contracts with One-Agent and
Hidden Action
14.1
Introduction
In the previous chap
in Chapter 9 tells us that, if the domain of economic environments is unrestricted, such
a mechanism does not exist unless it is a dictatorial mechanism. From the angle of the
mechanism design, we restate this theorem here.
Denition 15.5.1 A social choice
Cremer and McLean formulate conditions for BNE and DS implementation for more
than two agents and types. The condition for DS implementation is proved stronger than
the one for BNE implementation, but both hold for generic joint distributions of types.
15
Figure 9.1: The set of allocations in the core is simply given by the set of Pareto ecient
and individually rational allocations when n = 2.
Remark 9.2.5 Even though a Pareto optimal allocation is independent of individual
endowments, an allocation in the
m
t=1
t qt z = q z > 0 which contradicts the fact that z satises Walras Law. So F must
be FS-convex. Therefore, by KKM lemma, we have
qS F (q ) = .
Then there exists a p S such that p qS F (q ), i.e., p F (q ) for all q S .
Thus, for each q S , there is z
This proposition allows us to restate the consumers problem as
max u(x)
such that px = m.
The value of x that solves this problem is the consumers demanded bundle: it
expresses how much of each good the consumer desires at a given level of prices and
inco
Many people nd this research method bewildering. They think the assumptions in
the theories seem too unpractical and thus doubt whether modern economic theory is of
any use. Actually, this sort of criticism indicates that they havent truly understood this
which is recast into economic terms using cost functions.
3.2
Production Technology
Production is the process of transforming inputs to outputs. Typically, inputs consist
of labor, capital equipment, raw materials, and intermediate goods purchased from ot
px + (1 p)y . Such behavior is called risk aversion. A consumer may also be risk loving;
in such a case, the consumer prefers a lottery to its expected value.
Figure 4.3: Expected utility of a gamble.
If a consumer is risk averse over some region, the cho
Figure 6.5: Monopoly results in Pareto inecient outcome.
To see this let us think of the monopolist in Figure 6.5 after he has sold ym of output
at the price pm , and received his monopolist prot. Suppose that the monopolist were
to produce a small unit o