040244 UK Intermediate Public Economics (MA) (2020S)

Prerequisites:

A minimal amount of familiarity with game theory and mathematical optimization 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. The necessary optimization background can be met by studying Jehle and Reny, "Advanced Microeconomic Theory", appendice A1, sections A1.1, A1.2, and A1.4, as well as appendice A2, sections A2.1, A2.2, and A2.3.

Course Outline:

Economists rarely come to an agreement when discussing the optimal size of the public sector. In this class and its advanced sequel we will see how one may use the standard microeconomics toolbox (game theory, consumption and production theory, equilibrium theory) to formalize important arguments for and against the expansion of the public sector.

Following usual approaches, we will keep the analysis of government activities and that of government finances separate. The former will be central to the first part of the course, in which students will discuss the desirability of government intervention in the presence of public goods or externalities. The latter will be central to the second part, during which students will study the economic effects of taxation.

The difference between Intermediate Public Economics (040244-1) and Advanced Public Economics (040250-1) is threefold. First, the intermediate course introduces the basic conceptual framework used by economists to discuss issues related to the government, its role, and its finances, while the advanced course takes this framework for granted. Second, most topics covered in the intermediate class are only tacitly related to the problem of asymmetric information. In the advanced class, mechanism design is introduced and the impact of information asymmetries is explicitly studied. Third, the explicit introduction of information asymmetries demands more advanced game theoretical tools. Students who expect to follow the advanced class must know classical treatments of static games of incomplete information.