Master 2020/2021

Advanced Microeconomics

Type: Compulsory course (Financial Economics)

Area of studies: Economics

Delivered by: International College of Economics and Finance

Where: International College of Economics and Finance

When: 1 year, 1-4 module

Mode of studies: offline

Instructors: Emiliano Catonini, Tatiana Mayskaya, Anna Yurko, Alexander Zasorin

Master’s programme: Financial Economics

Language: English

ECTS credits: 8

Contact hours: 90

Course Syllabus

Abstract

This is a yearlong course in Advanced Microeconomics. During the first two modules we study the decisions of individual economic agents, beginning with the theory of consumer choice and the producer theory. We introduce the concept of duality and analyze it in the context of consumption and production decisions. Afterwards, we study decision-making under uncertainty and introduce the expected utility theory. We also discuss its critiques. The first part concludes with the study of competitive equilibrium and its welfare properties in a general equilibrium setting. The remaining modules can be divided into four subparts: game theory, contract theory, matching theory, and social choice theory. Game-theoretical subpart covers static and dynamic games, both of complete and incomplete information. All other subparts use tools introduced here. Theory of contracts focuses on the principal-agent models with asymmetric information and unobservable actions. As another example of a mechanism design problem, we cover two-sided matching. We end the course by social choice theory that studies preference aggregation rules and their normative appeal. Pre-requisites: Calculus, Probability Theory, Mathematics for Economists.

Learning Objectives

• introduce basic concepts of microeconomics related to economic decisions of consumers and firms
• introduce basic concepts of game theory
• relate the concept of Pareto efficiency to economic and social outcomes
• connect studied theoretical concepts to real life

Expected Learning Outcomes

• Set up and solve models of consumer choice theory to obtain individual and aggregate market demands for goods
• Analyze properties of demand functions.
• Explain the relationship between observed choices and unobserved consumer preferences
• Set up and solve firm problems, derive and analyze individual and aggregate market supply functions
• Analyze the relationship between properties of technologies and firm production decisions
• Discuss and apply the standard approach to modelling uncertainty in the economics and finance literature
• Set up and solve decision problems involving uncertainty
• Apply the key efficiency concept – Pareto efficiency to evaluate market and non-market allocations of goods and resources
• Set-up and solve the benchmark general equilibrium model, find the equilibrium prices and allocations of goods and compare these allocations to the socially optimal outcomes
• Outline the fundamental principles of strategic reasoning
• Predict the equilibrium outcomes among agents with strategic power
• Evaluate the impact of information asymmetries on strategic reasoning and equilibrium outcomes
• Explain the role of time and observation of the opponents' moves in dynamic strategic interaction
• Predict the long term outcomes of repeated strategic interaction
• Evaluate the role of communication in determining economic outcomes
• Outline the main tradeoffs in models with adverse selection and moral hazard
• Apply deferred acceptance algorithm to one-to-one matching problems
• Be able to discuss properties of different social choice functions

Course Contents

• Consumer Choice Theory
  This chapter studies in detail the individual decisions of consumers. First, we consider individual decision making in an abstract setting: the preference-based vs. the choice-based approach. Then, we focus on the optimal decisions of individual consumers. We derive individual demands and work out their properties. We further discuss the duality of utility maximization and expenditure minimization, study the problem of integrability, and analyze the relation between the earlier results and the choice-based approach. We conclude with the issues of demand aggregation.
• Producer Theory
  This part of the course studies the behavior of the firm and develops a theory parallel to the theory consumption analyzed earlier. We study profit maximization and cost minimization, work out the properties of firm’s supply, discuss efficiency in production. The chapter finishes with supply aggregation
• Choice Under Uncertainty
  We start by learning how to represent risky alternatives by means of lotteries. Then, by imposing rationality, continuity, and independence on individual preferences we obtain a central result known as the expected utility theorem. We analyze the attitude of different individuals towards risk and discuss some classical measures of risk aversion. We then move to comparing alternative distributions of monetary returns in terms of stochastic dominance. We consider the limitations of the expected utility theory and we provide Savage’s foundation for subjective expected utlity theorem. Violations of Savage axioms lead to a brief discussion of Ellsberg’s paradox and ambiguity aversion.
• General Equilibrium
  In this part of the course we consider a competitive market economy in a general equilibrium setting. We formally introduce the notions of Pareto optimality and competitive (or Walrasian) equilibrium and analyze their interrelation summarized in the two fundamental theorems of welfare economics. We study in detail the 2 by 2 exchange economy model and the 2 by 2 (two products, two factors) production economy model.
• Game theory
  Dominance and rationalizability Nash equilibrium Incomplete information games Dynamic games Repeated games Cheap-talk, signaling, persuasion games
• Contract Theory
  a. hidden information: screening b. hidden action: moral hazard
• Matching theory
  a. deferred acceptance algorithm b. lattice structure of stable matchings c. strategy-proofness: impossibility result
• Social choice theory
  a. Arrow impossibility theorem b. restricted domain: single-peaked preferences and median voter theorem

Assessment Elements

• Exam Winter
  Written examination
• Intermediate Test 1
  Для студентов она дистанте экзамен проводится в письменной форме с использованием синхронного прокторинга. Экзамен проводится на платформе https://hse.student.examus.net). К экзамену необходимо подключиться за 10 минут до начала. Проверку настроек компьютера необходимо провести заранее, чтобы в случае возникших проблем у вас было время для обращения в службу техподдержки и устранения неполадок. Компьютер студента должен удовлетворять требованиям: 1. Стационарный компьютер или ноутбук (мобильные устройства не поддерживаются); 2. Операционная система Windows (версии 7, 8, 8.1, 10) или Mac OS X Yosemite 10.10 и выше; 3. Интернет-браузер Google Chrome последней на момент сдачи экзамена версии (для проверки и обновления версии браузера используйте ссылку chrome://help/); 4. Наличие исправной и включенной веб-камеры (включая встроенные в ноутбуки); 5. Наличие исправного и включенного микрофона (включая встроенные в ноутбуки); 6. Наличие постоянного интернет-соединения со скоростью передачи данных от пользователя не ниже 1 Мбит/сек; 7. Ваш компьютер должен успешно проходить проверку. Проверка доступна только после авторизации. Для доступа к экзамену требуется документ удостоверяющий личность. Его в развернутом виде необходимо будет сфотографировать на камеру после входа на платформу «Экзамус». Также вы должны медленно и плавно продемонстрировать на камеру рабочее место и помещение, в котором Вы пишете экзамен, а также чистые листы для написания экзамена (с двух сторон). Это необходимо для получения чёткого изображения. Во время экзамена запрещается пользоваться любыми материалами (в бумажном / электронном виде), использовать телефон или любые другие устройства (любые функции), открывать на экране посторонние вкладки. В случае выявления факта неприемлемого поведения на экзамене (например, списывание) результат экзамена будет аннулирован, а к студенту будут применены предусмотренные нормативными документами меры дисциплинарного характера вплоть до исключения из НИУ ВШЭ. Если возникают ситуации, когда студент внезапно отключается по любым причинам (камера отключилась, компьютер выключился и др.) или отходит от своего рабочего места на какое-то время, или студент показал неожиданно высокий результат, или будут обнаружены подозрительные действия во время экзамена, будет просмотрена видеозапись выполнения экзамена этим студентом и при необходимости студент будет приглашен на онлайн-собеседование с преподавателем. Об этом студент будет проинформирован заранее в индивидуальном порядке. Во время выполнения задания, не завершайте Интернет-соединения и не отключайте камеры и микрофона. Во время экзамена ведется аудио- и видео-запись. Процедура пересдачи проводится в соответствии с нормативными документами НИУ ВШЭ.
• Short Quizzes
• Intermediate test 2
  Written examination
• Intermediate test 3
  Written examination
• Exam spring
  Written examination
• Home assignments
  Not included in the final grade.

Interim Assessment

• Interim assessment (2 module)
  0.68 * Exam Winter + 0.29 * Intermediate Test 1 + 0.03 * Short Quizzes
• Interim assessment (4 module)
  0.25 * Exam spring + 0.5 * Interim assessment (2 module) + 0.125 * Intermediate test 2 + 0.125 * Intermediate test 3

Bibliography

Recommended Core Bibliography

• Contract theory, Bolton, P., 2005
• Martin J Osborne, & Ariel Rubinstein. (2009). A Course in Game Theory. Levine’s Bibliography. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.p.cla.levrem.814577000000000225
• Mas-Colell, A., Whinston, M. D., & Green, J. R. (1995). Microeconomic Theory. Oxford University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.oxp.obooks.9780195102680
• Roth, A. E., & Sotomayor, M. A. O. (1992). Two-Sided Matching. Cambridge University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.cup.cbooks.9780521437882

Recommended Additional Bibliography

• Gibbons, R. (1992). Game Theory for Applied Economists. Princeton: Princeton University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsebk&AN=390677
• Mathematics for economists, Simon, C. P., 1994