Microeconomics III

Code:

LEC211

Acronym:

MICIII

Keywords
Classification	Keyword
OFICIAL	Economics

Instance: 2005/2006 - 2S

Active?	Yes
Responsible unit:	Grupo de Economia
Course/CS Responsible:	ECONOMICS

Cycles of Study/Courses

Acronym	No. of Students	Study Plan	Curricular Years	Credits UCN	Credits ECTS	Contact hours	Total Time
ECO	467	Official Curricular Structure since 2004	2	2		-

Objectives

Introduction to questions of uncertainty and information in economics as explaining individual behaviour and the workings of markets, in particular:
Uncertainty: expected utility, risk aversion, measures of risk.
Game theory: Nash equilibrium; Static and dynamic games of complete information; Static and dynamic games of incomplete information.
Information: Moral hazard; Adverse selection; Sinalization.

Program

Part I: Static games of complete information

Chapter 1: Nash equilibrium
1.1 Normal representation: players, strategies and payoffs
1.2 Equilibrium in dominant strategies
1.3 Equilibrium in iterated dominated strategies
1.4 Nash equilibrium
1.5 Focal point
1.6 Games with continuous strategies

Chapter 2: Oligopoly
2.1 The Cournot duopoly game
2.2 The Bertrand duoploly game


Parte II: Dynamic games of complete information

Chapter 3: Subgame perfect equilibrium
3.1 Extensive representation: Decision tree, strategies, information and payoffs
3.2 Nash equilibrium and backward induction
3.3 Threats and credible theats
3.4 Subgames and subgame perfect equilibrium
3.5 Dynamic games with continuous strategies: The Stackelberg duopoly game

Chapter 4: Negotiation
4.1 Negotiation without impatience
4.2 Negotiation with symmetric impatience
4.3 Negotiation with asymmetric impatience
4.4 Experimental evidence of bilateral sequential negotiation

Chapter 5: Repeated games and dynamic competition

5.1 Repeated games with finite horizont
5.2 Repeated games with infinite horizont: The folk theorem
5.3 The Bertrand game revisited


Parte III: Games with uncertain outcomes

Chapter 6: Uncertainty and expected utility
6.2 Exogenous uncertainty in static games
6.3 Exogenous uncertainty in dynamic games
6.4 Endogenous uncertainty in static games
6.5 Expected utility
6.6 Attitudes towards risk

Chapter 7: Moral hazard
7.1 Insurance in the absence of moral hazard
7.2 Insurance in the presence of moral hazard
7.3 Efects of moral hazard in welfare


Parte IV: Static games of incomplete information

Chapter 8: Bayesian Nash equilibrium
8.1 The Harsanyi transformation
8.2 Reinterpreting mixed strategies
8.3 Revelation principle and game design

Parte V: Dynamic games of incomplete information

Chapter 9: Perfect Bayesian equilibrium
9.1 Information set
9.2 Bayes' theorem
9.3 Perfect Bayesian equilibrium
9.4 Sinalization
9.5 Adverse selection

Main Bibliography

Bierman, H. Scott, and Luís Fernandez (1998), Game Theory with economic applications. 2nd edition, Addison-Wesley

Complementary Bibliography

[V] Varian, Hal R. (1993), Intermediate Microeconomics. A Modern Approach. 3ª edição, W.W. Norton.
[G] Gibbons, Robert (1992), A Primer in Game Theory. Princeton University Press.

Teaching methods and learning activities

Solving application exercises, with the aim at developing basic microeconomic theory the students have obtained before, and allow for the motivation of other courses that follow in the plan of studies of the undergraduate program.

Evaluation Type

Calculation formula of final grade

50%-50%, as regards evaluation by tests.

Special assessment (TE, DA, ...)

In case it is requested.