Economics 2010b: Microeconomic Theory II

We will study two main topics. The first six lectures will be devoted to general equilibrium theory, including optimality, existence of equilibrium, equilibrium under uncertainty, and foundations. The remaining lectures will be devoted to contract theory, including moral hazard, theory of the firm, and financial contracting. Below is the syllabus, an outline of the course, and a series of lecture notes. The class meets in Harvard Hall, room 202 on Tuesdays and Thursdays from 10:00-11:29.


Lecture notes on general equilibrium theory - this is a collection of the notes from the first seven lectures on GE
Lecture notes on contract theory - this is a collection of the notes from the last six lectures on contract theory

Schedule and Lecture Notes

Week 1
Topics: introduction to general equilibrium theory; welfare theorems; Pareto-optimal allocations
Readings: lecture notes and MWG Chapters 16.A-16.F

Week 2
Topics: existence of Walrasian equilibrium; uniqueness, stability, and testability
Readings: lecture notes and MWG Chapters 17.A-17.F
*Problem Set 1 due Friday, February 2nd

Week 3
Topics: foundations; firms and production
Readings: lecture notes and MWG Chapters 18.A-18.C, 18.E
*Problem Set 2 due Friday, February 9th

Week 4
Topics: equilibrium under uncertainty; introduction to moral hazard; risk--incentives trade-off
Readings: lecture notes on equilibrium under uncertainty and MWG 19.A-19.G
lecture notes on intro to contract theory and MWG 14.B, Bolton and Dewatripont Chapter 4
*Problem Set 3 due Friday, February 16th

Week 5
Topics: first-order approach; limited liability; multi-task problem; moral hazard in teams
Readings: lecture notes and Bolton and Dewatripont, Chapters 6.2, 8.1
*Problem Set 4 due Sunday, February 25th

Week 6
Topics: introduction to the theory of the firm; property rights theory
Readings: lecture notes and Hart, chapters 1 and 2
*Problem Set 5 due Sunday, March 4th

Week 7
Topic: financial contracting
Readings: lecture notes and Tirole, chapter 3
*In-class midterm on Thursday, March 8th