Economics 805: Advanced Microeconomic Theory I
Fall 2009
Dan Quint
Professor: Dan Quint
7428
263-2515
Class Website: http://www.ssc.wisc.edu/~dquint/econ805
Office Hours: by appointment (I’m in my office all the time –
drop by or email to set a time)
Meetings: Tuesdays and Thursdays, 1:00-2:15, 6314
Grading: There will be occasional problem sets,
and students will present papers late in the semester.
Paul Klemperer, “Auctions:
Theory and Practice” (Princeton University Press, 2004, “ATP”) is available
free online as a link from http://www.paulklemperer.org
and contains an excellent overview of the theory literature, some nice
motivation for why auctions are an interesting topic, and a nice treatment of
some of the “real-world” stumbles that are often overlooked in the theory
literature. (I prefer Milgrom’s treatment of the mathematical stuff, but
Klemperer is excellent on the big picture.)
Vijay Krishna, “Auction
Theory”, is also quite good, if you’re desperate for another treatment.
Much of the early material in
this course is also covered (briefly) in Mas-Colell, Whinston, and Green, “Microeconomic
Theory” (“MWG”) and in Fudenberg and Tirole, “Game
Theory” (“FT”), one or both of which I suspect most of you already own.
All the papers below are
available online; most are listed with links to JSTOR, which requires a
subscription and therefore may only work from on-campus computers.
I plan to post my lecture
notes online shortly after each lecture.
Course Outline and
Introduction (9/3)
Motivation
for studying auctions – ATP chapter 2 (“Why Every Economist Should Learn Some
Auction Theory”) (link)
Review
of Bayesian games and Bayesian Nash Equilibrium – MWG 8.D-8.E or FT 6.1-6.4
The Independent Private
Values Framework (9/8, 9/10, 9/15)
Common
auction formats as Bayesian games, strategic equivalences, equilibrium bidding
strategies
The
Envelope Theorem – Paul Milgrom and Ilya Segal (2002), “Envelope Theorems for Arbitrary Choice
Sets,” Econometrica 70 (link)
Revenue Equivalence
Necessary
and Sufficient Conditions for Equilibrium Strategies – PATW 4.1; Paul Milgrom and Chris Shannon (1994), “Monotone Comparative
Statics,” Econometrica 62 (link)
Calculating equilibriums strategies using revenue
equivalence – PATW 4.2
The Mechanism Design Approach
and Optimal Auctions (9/17, 9/22)
Mechanisms, direct mechanisms and the revelation
principle
Roger
Myerson (1981), “Optimal Auction Design,” Mathematics of Operations Research 6
(link)
(Also
covered in MWG p 903-4, FT p 284-288, and PATW 3.3)
Relaxing the Assumptions of
Independent Private Values (9/24, 9/29, 10/1)
Risk
Aversion – PATW 4.3; Eric Maskin and John Riley
(1984), “Optimal Auctions with Risk Averse Buyers,” Econometrica
52 (link)
Asymmetric
Bidders – PATW 4.5; Eric Maskin and John Riley
(2000), “Asymmetric Auctions,” Review of Economic Studies 67 (link)
Interdependent
Values – Paul Milgrom and Robert Weber (1982), “A
Theory of Auctions and Competitive Bidding,” Econometrica 50 (link)
Dealing
with both risk-aversion and affiliation – Dan Levin and Lixin
Ye (2007), “Hybrid Auctions Revisited,” working paper
(link)
Peter
Eso (2005), “An Optimal Auction with Correlated
Values and Risk Aversion,” Journal of Economic Theory 125 (link)
Common Values (10/6, 10/8)
Lack
of equivalence between ascending and second-price sealed-bid auction; the
winner’s curse; multiplicity in second-price auction; information aggregation
Drainage
Tract Auctions – PATW 5.3
Almost-common
values – Paul Klemperer (1998), “Auctions with Almost Common Values,” European
Economic Review 42 (link)
(click on “PDF” link to download)
Information
Aggregation – Paul Milgrom (1981), “Rational
Expectations, Information Acquisition, and Competitive Bidding,”
Econometrica 49 (link)
Wolfgang
Pesendorfer and Jeroen Swinkels (1997), “The Loser’s Curse and Information
Aggregation in Common Value Auctions,” Econometrica
65 (link)
Ronald
Harstad, Aleksandar Pekec, and Ilia Tsetlin (2008), “Information Aggregation in Auctions with
an Unknown Number of Bidders,” Games and Economic Behavior 62 (link)
Number of Bidders (10/13)
The
“marginal revenue” analogy and the value of another bidder – Jeremy Bulow and
Paul Klemperer (1996), “Auctions Versus Negotiations,” American Economic Review
86 (link)
Auctions
with endogenous entry – PATW 6.2
types
realized before entry decision: William Samuelson (1985), “Competitive Bidding
with Entry Costs,” Economics Letters 17 (link)
types
realized after entry decision, sequential entry: Preston McAfee and John
McMillan (1987), “Auctions With Entry,” Economics Letters 23 (link)
types
realized after entry decision, simultaneous entry: Dan Levin and James Smith
(1994), “Equilibrium in Auctions with Entry,” American Economic Review 84 (link)
Entry
Deterrence and Predation – ATP chapter 3 (link)
Endogenous Information (10/15)
Covert
information acquisition: Nicola Persico (2000),
“Information Acquisition in Auctions,” Econometrica
68 (link)
Public
versus covert: Daniel Quint (2007), “Common Value
Auctions with Two Bidders: When To Brag About What You
Know,” working paper (link)
Two
hard papers on public information acquisition: Nathan Larson (2005), “Private
Value Perturbations and Informational Advantage in Common Value Auctions,”
working paper (link)
Angel
Hernando-Veciana (2007), “Information Acquisition in
Auctions: Sealed Bids vs. Open Bids,” working paper (link)
Double Auctions (10/20)
Mark
Satterthwaite and Steven Williams (1989), “Bilateral
Trade with the Sealed Bid k-Double Auction: Existence and Efficiency,” Journal
of Economic Theory 48
Phil
Reny and Motty Perry
(2006), “Toward a Strategic Foundation for Rational Expectations Equilibrium,” Econometrica 74 (link)
Wars of Attrition (10/22)
Jeremy
Bulow and Paul Klemperer (1999), “The Generalized War of Attrition,” American
Economic Review 89 (link)
Ron Siegel, “All-Pay Contests,” working paper (link)
Two-Sided Matching Markets
One-to-One Matching (10/27,
10/29)
Alvin Roth and Marilda Sotomayor, Two-Sided Matching: A Study in Game-Theoretic
Modeling and Analysis (Cambridge Univ Press 1992), chapters 2 and 4
David
Gale and Lloyd Shapley (1962), “College
Admissions and the Stability of Marriage,” American Mathematical Monthly 69
Alvin
Roth (1982), “The Economics of
Matching: Stability and Incentives,” Mathematics of Operations Research 7
Many-to-One Matching (11/3)
Roth and Sotomayor, chapter 5
Alvin Roth (1985), “The College Admissions
Problem Is Not Equivalent to the Marriage Problem,” Journal of Economic
Theory 36
Alvin Roth (1986), “On the Allocation of Residents to
Rural Hospitals: A General Property of Two-Sided Matching Markets,” Econometrica 54
Fuhito Kojima and Parag Pathak (2007), “Incentives and Stability in Large
Two-Sided Matching Markets,” working paper
Matching with Money (11/5)
Roth and Sotomayor, chapter 6
Lloyd Shapley and Martin Shubik
(1972), “The Assignment Game I:
The Core,” International Journal of Game Theory 1
Alexander Kelso and Vincent Crawford (1982), “Job Matching, Coalition Formation,
and Gross Substitutes,” Econometrica 50
John Hatfield and Paul Milgrom
(2005), “Matching with Contracts,”
American Economic Review 95
And then on
to extensions and applications…
Coles,
Peter, and Muriel Niederle (2007), “Signaling in
Matching Markets,” working paper
Frechette,
Guillaume, Alvin Roth, and Utku Unver
(2007), “Unraveling
Yields Inefficient Matchings: Evidence from
Post-Season College Football Bowls,” RAND Journal of Economics 38.4
Roth,
Alvin, Tayfun Somnez, and Utku Unver (2005), “Pairwise Kidney Exchange,” Journal of Economic Theory
125.2
Abdulkadiroglu, Atila, and Tayfun
Somnez (2003), “School Choice: A Mechanism Design
Approach,” American Economic Review 93.3
Ostrovsky,
Michael (2008), “Stability in
Supply Chain Networks,” American Economic Review 98.3