Spring 2016

Harvard Kennedy School

Harvard University
Syllabus
Advanced Microeconomic Policy Analysis II
API-110

Faculty: Faculty Assistant:

Ran Shorrer Eneida Rosado
O: Littauer 210 O: Littauer 211B
T: 617-496-2280 T: 617-496-2280
E: [email protected] E: [email protected]

Teaching Fellow:
Nir Hak [email protected]

Course Assistants:
Emilio Hungria [email protected]

m
Neeraj Trivedi [email protected]

er as
Prabhat Mishra [email protected]

co
eH w
API-110 is the second half of the two-semester sequence in advanced microeconomic analysis for MPA/ID

o.
students. The aim of this course is to further equip students with tools of modern microeconomic theory
rs e
helpful in analyzing issues in international development. Topics covered will include game theory, the
ou urc
economics of information, contract theory, and touch on market design and experimental/behavioral
economics.
o

The course meets twice a week for lecture:

 Monday and Wednesday 1:15-2:30 pm
aC s

 Room: L-140
vi y re

There will be two review sessions (students need only attend one) offered on Fridays by the Teaching
Fellow:
 Review Sections: Friday 10:15 – 11:30 am, and 11:45 – 1:00 pm
ed d

 Room: L-140
ar stu

In addition, course assistants will hold weekly office hours (timing TBD) to help with the homework and
other basic questions. Students are encouraged to consult the Teaching Fellow or me for more advanced
is

questions.
Th

Office Hours:
Fridays 8:30-10 am
sh

Prerequisites:
API-109 or its equivalent. For equivalent courses, the same pre-requisites as in API-109 apply.

Grading:
Grades for the course will be assigned based on:
Problem Sets 10%
Participation 5%
1

This study source was downloaded by 100000791228325 from CourseHero.com on 11-24-2021 02:51:11 GMT -06:00

https://www.coursehero.com/file/32900340/API-110pdf/
 Midterm 25%
Final 60%

Problem Sets: There will be a total of 8 Problem sets assigned generally every week (usually on a
Wednesday and due back on the Wednesday a week later). Problem sets should be turned in anytime by
10:10am on the due-date in the course drop box. Problem sets turned in after that will be considered late and
will not receive any credit. In rare cases, exceptions may be made if arranged with Nir in advance.

The drop boxes are on the second floor of Littauer behind the big Forum Screen. Problem sets can be picked
up from the mail folders in the MPA/ID office area on the Wednesday after they are due.

Due dates: Feb 3, Feb 10, Feb 17, Mar 2, Mar 23, Mar 30, Apr 13, Apr 20 (combined w PED-102)

Grades on 0-10 scale. An average of 7 is expected. If you score less than 3 you should come to office hours.
The grade will be based on the best 6 of the first 7 problem sets, and on the 8th.

Examinations: There will be a midterm examination given in class on Wednesday, March 9th, 2016 and the
final examination is scheduled for Friday, May 6th, 2016 3-6 pm.

m
er as
Readings:

co
In addition to the texts used in API-109 (MWG in particular), the following are required for this course:

eH w
Game Theory for Applied Economists by Robert Gibbons (G), Princeton University Press, 1992.

o.
The Economics of Contracts by Bernard Salanie (S), MIT Press, 1999.
rs e
ou urc
These texts are available at the Harvard Coop and are on reserve at the KSG library.

You may also want to consult the following optional texts placed at the KSG library reserve:
o

 Ray, Debraj. Development Economics 1998

 Fudenberg, Drew Game Theory 1991
aC s

 Kreps, David Game Theory and Economic Modeling 1990

vi y re

 Dutta, P. Strategies and Games 1999

 Rasmusen, E. Games and Information: An Introduction to Game Theory 2001
 Hart, O. Firms, Contracts and Financial Structure 1995
 Kreps, David. A Course in Microeconomic Theory 1990
ed d

 Varian, H. Microeconomic Analysis 1992

ar stu

 Basu, K. Analytic Development Economics 1998

 Bardhan, P and C. Udry. Development Microeconomics 1999
 Meier, G and Stiglitz. Frontier of Development Economics: The Future in Perspective 2001
is
Th

Etiquette: As you know, class meetings are 5 minutes shorter this year, so it’s more important than
ever for all courses to start on time. Class will start promptly at 1:15pm. Please be in class, in your
assigned seat, at that time. Repeated late arrival will be reflected negatively in your participation
grade. If you must arrive late for an unavoidable reason, please come in as quietly as possible.
sh

This study source was downloaded by 100000791228325 from CourseHero.com on 11-24-2021 02:51:11 GMT -06:00

https://www.coursehero.com/file/32900340/API-110pdf/
 Tentative Schedule
Date: Jan 22, 2016 (subject to change)

I. GAME THEORY

Lecture 1 –
 Formal Description of Games (MWG 7.B)
 Playing Games

I.A. Static Games of Complete Information

m
er as
Lecture 2 –
 Normal Form Representation

co
(G 1.1.A)

eH w
 Dominant Strategies, Iterated Elimination (G 1.1.B, MWG 8.B)

o.
Lecture 3 –
Applications of NE rs e
ou urc
 Nash Equilibrium (NE) (G 1.1.C, Appendix 1.1.C, MWG 8.D)
 Bertrand Competition (G 1.2.B, MWG 12.C)
 Cournot Competition (G 1.2.A, MWG 12.C)
o

 Tragedy of the Commons (G 1.2.D)

aC s
vi y re

* Hardin, G. 1968. “The Tragedy of the Commons.” Science 162: 1243-48

Tabellini, Guido. 2008. “The scope of cooperation”, The Quarterly Journal of Economics, 123, 905-
950.
ed d

Lectures 4-5 –
ar stu

 Mixed Strategies (G 1.3.A)

 NE existence (G 1.3.B)
is
Th

I.B. Dynamic Games of Complete Information

Lecture 6 –
 Perfect Information Games, Backward Induction (G 2.1.A)
sh

 Extensive & Normal Form Representation (G 2.4.A, MWG 7.C-D)

 Randomization (MWG 7.E)

Lecture 7 –
 Subgame Perfect Nash Equilibrium (SPNE) (G 2.4.B, MWG 9.A-B)
 Stackleberg Competition (G 2.1.B)

This study source was downloaded by 100000791228325 from CourseHero.com on 11-24-2021 02:51:11 GMT -06:00

https://www.coursehero.com/file/32900340/API-110pdf/
  Bank Runs (G 2.2.B)

Diamond, D. and Dybvig, P. 1983. “Bank Runs, Deposit Insurance, and Liquidity,” Journal of
Political Economy, Vol. 91, No. 3, p. 401-419.

Fearon, James D. 1995. “Rationalist Explanations for War” Industrial Organization, Vol. 49, No 3,
pp. 379-414

Lecture 8-9 –
 Repeated Games (G 2.3.A, MWG 12.D)
 Infinitely Repeated Games, Folk Theorem (G 2.3.B&Appendix, MWG 12.Appendix A)
 Collusion (G 2.3.C)

Green, Edward J and Robert H. Porter. 1984 “Noncooperative Collusion under Imperfect Price
Information” Econometrica, Vol. 52, No. 1, pp. 87-100

Coate, Stephen, and Martin Ravallion. "Reciprocity without commitment: Characterization and
performance of informal insurance arrangements." Journal of Development Economics 40, no. 1

m
(1993): 1-24

er as
co
Lecture 10 –11 –

eH w
 Two-sided matching

o.
rs e
* Roth, Alvin E. "What Have We Learned from Market Design?." The Economic Journal 118.527
ou urc
(2008): 285-310.

Lecture 12 –
 Midterm review with Nir
o
aC s
vi y re

Midterm (in class) –

I.C. Static Games of Incomplete Information

ed d
ar stu

Lecture 13 –
 Static Bayesian Games (G 3.1.A-B, MWG 8.E)
 Bayesian Nash Equilibrium (BNE) (G 3.1.C, MWG 8.E)
 BNE Applications (G 3.2.A, MWG 8.E)
is

Lecture 14 –
Th

 Auctions

*Chapter 9 Networks, Crowds, and Markets: Reasoning about a Highly Connected World. By David
sh

Easley and Jon Kleinberg. Cambridge University Press, 2010.

Complete preprint on-line at http://www.cs.cornell.edu/home/kleinber/networks-book/

I.D. Dynamic Games of Incomplete Information

Lecture 15-16 –
4

This study source was downloaded by 100000791228325 from CourseHero.com on 11-24-2021 02:51:11 GMT -06:00

https://www.coursehero.com/file/32900340/API-110pdf/
  Perfect Bayesian Equilibrium (PBE) (G 4.1, MWG 9.C)

Banerjee, A. 1992. “A Simple Model of Herd Behavior,” Quarterly Journal of Economics, Vol. 107,
No. 3, p. 797-817.

II. ECONOMICS OF INFORMATION & CONTRACT THEORY

Lectures 17-18 –
 Signalling (G 4.2.A)
 Signalling Application: Job-Market (G 4.2.B, S 4.2, MWG 13.C)

Rodrik, Dani. 1998. “Promises, Promises: Credible Policy Reform via Signalling.”. The Economic
Journal 99, Sep 1989 and in Federico Sturzenegger and Mariano Tommasi eds. The Political
Economy of Reform. Cambridge, MA: the MIT Press.

Lecture 19 –

m
 Introduction: hidden information, hidden action,

er as
Principal-Agent framework (S 1, MWG 13.A, 14.A)

co
 Screening/Adverse Selection (S 2.1-2 , MWG 14.C)

eH w
Akerlof , G. 1970. “The Market for "Lemons": Quality Uncertainty and the Market Mechanism,”

o.
rs e
Quarterly Journal of Economics, Vol. 84, No. 3. p. 488-500.
ou urc
Lectures 20-21 –
 Moral Hazard (MH) (S 5.1-2, MWG 14.B)
 MH Application: Share-cropping
o
aC s

Ghatak, M and T. Guinnane “The Economics of Lending with Joint Liability: Theory and Practice.
vi y re

Journal of Development Economics, Vol.60, No.1, Oct. 1999. See Corrections to paper, Journal of
Development Economics, Vol.69, No.1, Oct. 2002.

Besley, Timothy, and Maitreesh Ghatak. 2005. "Competition and Incentives with Motivated
ed d

Agents." American Economic Review, 95(3): 616–636.

ar stu

Eswaran, M and Kotwal, K 1985. “A Theory of Contractual Structure in Agriculture,” American

Economic Review, Vol. 75(3), p. 352-366.
is

Eswaran, M and Kotwal, K. “A Theory of Two-Tier Labor Markets in Agrarian Economies,”

American Economic Review, Vol. 75, No. 1. (Mar., 1985), pp. 162-177.
Th

Foster, A and M. Rosenzweig, “A Test for Moral Hazard in the Labor Market: Contractual
Arrangements, Effort and Health,” Review of Economics and Statistics, Vol. 76, 1994, pp. 213-27.
sh

Otsuka, K, H. Chuma, and Y. Hayami, “Land and Labor Contracts in Agrarian Economies: Theories
and Facts,” Journal of Economic Literature 30, December 1992, 1965-2018.

Lectures 22-23 – Select topics

This study source was downloaded by 100000791228325 from CourseHero.com on 11-24-2021 02:51:11 GMT -06:00

https://www.coursehero.com/file/32900340/API-110pdf/
Powered by TCPDF (www.tcpdf.org)