ECON 727: Microeconomic Theory for Public Policy

Transcription

1 Department of Economics, McMaster University Fall 2017 Instructor: ECON 727: Microeconomic Theory for Public Policy Mike Veall, KTH 435, x23829, (Please do not use the within Avenue to Learn.) Until further notice, my office hours will be Mondays 3:00 to 4:20 but feel free to drop by whenever I am in or make an appointment. Please let me know if you are having difficulty seeing me. Overall Description: This course covers graduate-level microeconomic theory, with some attempt to emphasize those tools most relevant to the economic analysis of public policy and to describe the limitations of various approaches. Topics include theory of the consumer and producer, decisions under uncertainty, competitive markets, partial equilibrium analysis, some basic welfare economics, externalities and monopoly and other forms of imperfect competition. The course is designed to help prepare MAEP students to function as working economists, particularly so that they can read, understand, evaluate and interpret relevant modern literature in economics. Evaluation: In class test, November 2 (1:00 to 3:00) 26% Final exam 50% Assignments (total) (Assignment 4 24% presentations: November 13) The test and exam will consist of a mix of short answer questions and analytical problems and will draw in part on assignment questions and other homework. There will be 7 equal-weighted but not equally difficult assignments (counting Assignment 4 as two as both the team presentation and the submission are graded). Numerical grades will be converted to letter grades using the following scale: below 70: F 70-72: B : B 77-79: B : A : A : A+ 1

2 Academic Dishonesty Academic dishonesty consists of misrepresentation by deception or by other fraudulent means and can result in serious consequences, e.g. the grade of zero on an assignment, loss of credit with a notation on the transcript (notation reads: Grade of F assigned for academic dishonesty ), and/or suspension or expulsion from the university. It is your responsibility to understand what constitutes academic dishonesty. For information on the various kinds of academic dishonesty please refer to the Academic Integrity Policy, specifically Appendix 3, located at The following illustrates only three forms of academic dishonesty: 1. Plagiarism, e.g. the submission of work that is not one s own 2. Improper collaboration in group work 3. Copying or using unauthorized aids in tests and examinations. Besides the remedies referred to in the Academic Integrity Policy, I reserve the right to examine students orally regarding their assignments and to change grades or make charges of academic dishonesty based on their responses. Course Modification Warning The instructor and university reserve the right to modify elements of the course during the term. The university may change the dates and deadlines for any or all courses in extreme circumstances. If either type of modification becomes necessary, reasonable notice and communication with the students will be given with explanation and the opportunity to comment on changes. It is the responsibility of the student to check his/her McMaster and course websites weekly during the term and to note any changes. Outline and Reading List It is most important to have a fundamental grasp of the concepts we are going to cover. With that in mind, the text will be notes developed by Nolan Miller (NM) for a course at the Kennedy School of Government at Harvard (he is now at the University of Illinois). I have provided these notes on the course Avenue page. (They are also at ) I thank him for providing them. Professor Miller s notes refer to Mas-Colell, A., M. D. Whinston and J. R. Green (1995) but I will make no independent reference to this text. A. Mathematical Preliminaries (covered in pre-class, first class and on an as needed basis throughout the course; see references below for JR, V, DM and others) JR1, 2 2

3 B. Consumer Theory NM 2, 3, 4 i. Budget sets, preferences, utility V2,3,4; JR ; DM 1, 2.1 ii. Demands V5,6,7,8; JR1.5, 2.3; DM 2.2, 2.4, 2.6; iii. Duality JR1.4,2.1,2.2; DM 2.3, 2.5; iv. Price indices and equivalence scales DM 7.1, 8; Also Deaton (1997) Section 4.3 v. Consumer surplus; equivalent and compensating variation JR4.3.1, DM 7.4; vi. Extensions: a) endowments, labour supply - DM 4.1; V9 b) home production DM 10.1 c) allocation over time DM 4.2; V10 C. Firm Theory NM 5 i. Neoclassical Theory of the Firm V18,19,20,21,22; JR 3; ii. Parallels between neoclassical firm and consumer theory handout iii. Modern Firm Theory Bolton and Scharfstein (1998); Williamson (2002); Gassouste and Saussier (2005) D. Decision Making Under Uncertainty NM6, JR 2.4; DM ; V12 i. Probability, Random Variables, The St. Petersburg Paradox ii. Choice over Lotteries iii. VNM axioms and Properties of Expected Utility iv. Risk Aversion, Certainty Equivalence, Risk Premium v. Empirical Challenges to Expected Utility Rabin and Thaler (2001); Machina (1987); Tversky and Thaler (1990) E. Markets/Partial Equilibrium Analysis (with a Brief Introduction to Welfare Economics) NM7 i. Perfect Competition JR 4.1; V15,16,23 ii. Partial Equilibrium Analysis V31, 32, JR iii. Fundamental Welfare Theorems V33 3

4 F. Externalities, Public Goods and Monopoly (Market Failures) References NM8, NM 9 i. Externalities V34 ii. Public Goods V36 iii. Monopolies V24, V25 Ab Iowerth, A. and J. Whalley (2002), Efficency Considerations and the Exemption of Food from Sales and Value Added Taxes, Canadian Journal of Economics, 35(1) February, pp Banks, J., R. Blundell and A. Lewbel, (1996), Tax Reform and Welfare Measurement: Do We Need Demand System Estimation, Economic Journal 106: Boadway, Robin (2015), Tax Policy for a Rent-Rich Economy, Canadian Public Policy 41(4): Boskin et al., (1998), Consumer Prices, the Consumer Price Index, and the cost of Living., Journal of Economic Perspectives, 12 (1):3-26. Matthew Brzozowski, Matthew (2006) Does One Size Fit All? The CPI and Canadian Seniors, Canadian Public Policy, 32(4): Cardwell, Ryan, Chad Lawley and Di Xiang (2015), Milked and Feathered: The Regressive Welfare Effects of Canada s Supply Management Regime, Canadian Public Policy, 41(1), pp Chernoff, Alex W. (2015), Between a cap and a higher price: Modelling the price of dairy quotas under price ceiling legislation, Canadian Journal of Economics, 48 (4): Miles Corak, 'Inequality is the root of social evil,' or maybe not: Two stories about inequality and public policy, Canadian Public Policy (forthcoming, December, 2016). (may not be available early in course) Deaton, A. and J. Muellbauer, (1980). Economics and Consumer Behavior. Cambridge University Press. (DM) Jehle, G.A. and P.J. Reny, (1998). Advanced Microeconomic Theory. Addison-Wesley. (JR) (more recent editions will be fine) Lundberg, S. and R.A. Pollack, (1996). ``Bargaining and Distribution in Marriage, Journal of Economic Perspectives, 10(4): Lundberg, S., R.A. Pollak, and T.J. Wales, (1997). Do Husbands and Wives Pool Their Resources? Evidence from the United Kingdom Child Benefit. Journal of Human Resources, 32(3):

5 Machina, M., (1987). Choice Under Uncertainty: Problems Solved and Unsolved. Journal of Economic Perspectives, 4(2): Mas-Colell, A., M. D. Whinston and J. Green (1995), Microeconomic Theory, Oxford University Press. Pendakur, K., (2001). "Consumption Poverty in Canada 1969 to 1998", Canadian Public Policy. Rabin, M. and R.H. Thaler (2001). Anomalies: Risk Aversion. Journal of Economic Perspectives, 15(1): See also the comment by Watt and response by Rabin and Thaler in the Spring 2002 issue of the same journal (16(2):227) Tversky, A. and R.H. Thaler, (1990). Anomalies: Preference Reversal. Journal of Economic Perspectives, 1(1): Varian, H.R. (1996). Intermediate Microeconomics. 4 th Edition. W.W. Norton and Co. (V) (although any edition would do). Weil, Tom (2016), What can the Canadians and Americans learn from each other s health care systems, The International Journal of Health Planning and Management, 31 (3): (perhaps more than the others an article with a point of view, but will serve as a starting point). Wood, Joel (2015), Is it Time to Raise the Gas Tax? Optimal Gasoline Taxes for Ontario and Toronto?, Canadian Public Policy 41 (3):