040923 KU Public Economics (2022S)

*Prerequisites:*

Some familiarity with game theory and microeconomics will be expected.

The necessary game theoretical background can be met by studying Gibbons’ A Primer in Game Theory, Chapter 1, Sections 1.1 and 1.2. or weeks 1 and 2 of the Coursera lecture from the University of British Columbia (Jackson et al, Game Theory).

Students who studied microeconomics at an advanced undergraduate level (esp. consumer theory, producer theory, and walrasian equilibrium) should have the necessary background. Some specialized concepts from consumer theory will be used extensively: income expansion path (a.k.a. wealth expansion path), price offer curve, compensated demand function, Slutsky equation, equivalent and compensating variations. You find all of these in, e.g., Varian’s Microeconomic Analysis, chapters 7 to 10, or in Mas-Colell, Whinston, and Green’s Advanced Microeconomics, Chapters 2 and 3.

*Course Outline:*

When asked to pin down the optimal size of governement or list out optimal changes in activities of the public sector, economist rarely agree. One reason is that such questions are too ambitious for economists: they not well covered by the existing economic toolbox. Another reason is that economists do not all agree on the set of values that can legitimize state intervention. For instance, some take Pareto efficiency to be the only legitimate ground. Others factor in distributive justice or paternalism.

In this class we will illustrate and discuss some public sector related questions that can actually be addressed by making use of the standard microeconomics toolbox (game theory, consumption and production theory, equilibrium theory). We will also formalize important economic arguments for and against specific types of state intervention, and connect these to the value judgments they explicitely or implicitely involve.

Following usual approaches, we will keep the analysis of government activities and that of government finances separate. Both will be analyzed in this course.