A cutting-edge introduction to key topics in modern economic theory for first-year graduate students in economics and related fields
Volume II of Microeconomic Foundations introduces models and methods at the center of modern microeconomic theory. In this textbook, David Kreps, a leading economic theorist, emphasizes foundational material, concentrating on seminal work that provides perspective on how and why the theory developed. Because noncooperative game theory is the chief tool of modeling and analyzing microeconomic phenomena, the book stresses the applications of game theory to economics. And throughout, it underscores why theory is most useful when it supports rather than supplants economic intuition.
- Introduces first-year graduate students to the models and methods at the core of microeconomic theory today
- Covers an extensive range of topics, including the agency theory, market signaling, relational contracting, bilateral bargaining, auctions, matching markets, and mechanism design
- Stresses the use―and misuse―of theory in studying economic phenomena and shows why theory should support, not replace, economic intuition
- Includes extensive appendices reviewing the essential concepts of noncooperative game theory, with guidance about how it should and shouldn’t be used
- Features free online supplements, including chapter outlines and overviews, solutions to all the problems in the book, and more
Author(s): David M. Kreps
Publisher: Princeton University Press
Year: 2023
Language: English
Pages: 799
City: Princeton
Preface
Chapter Seventeen. Introduction to Volume II: Not a Symphony, but Ètudes
Chapter Eighteen. Cournot and Bertrand
18.1. Basic Cournot
18.2. Cournot “In General”
18.3. Basic Bertrand
18.4. Differentiated Goods
Bibliographic Notes
Problems
Chapter Nineteen. Moral Hazard and Incentives
19.1. A Very Simple Model
19.2. A Somewhat General Model
19.3. Back to Effort Incentives
19.4. A Continuum of Actions and the First-order Approach
19.5. Linear Incentive Schemes
19.6. Linear Incentives? Holmstrom and Milgrom (1987)
19.7. Is Risk Aversion the Key to Agency Issues?
Bibliographic Notes
Problems
Chapter Twenty. Private Information Part I: One-shot Interactions
20.1. Adverse Selection: Akerlof’s Market for Lemons
20.2. Akerlof Meets Game Theory: One Seller
20.3. Adverse Selection in Other Contexts
20.4. A Toy Model of Adverse Selection in Insurance
20.5. Screening as an Economic Concept
20.6. Single Crossing
20.7. Insurance with Two Types
20.8. Signaling: Spence’s Job Market
20.9. Cheap Talk
Bibliographic Notes
Problems
Chapter Twenty-One. Private Information Part II: An Introduction to Dynamics
21.1. Analysis of the Coase Conjecture in the Textbook Model
21.2. When Does the Coase Conjecture Hold?
21.3. (How) Can the Monopolist Escape the Coase-Conjecture Trap?
21.4. Other Contexts
Bibliographic Notes
Problems
Chapter Twenty-Two. Credibility: Reciprocity and Reputation
22.1. Oligopoly and Implicit Collusion
22.2. Entry Deterrence and Predation: The Chain-Store Paradox
22.3. Relational Contracting
Bibliographic Notes
Problems
Chapter Twenty-Three. Bilateral Bargaining
23.1. One-Sided Bargaining
23.2. The Two-Sided Demand Game
23.3. Rubinstein’s Alternating-Offer Game
23.4. Alice and Bob Negotiate Where to Eat Dinner
23.5. Abreu and Gul (2000); A War of Attrition with Incomplete Information
23.6. The “Most Natural” Context with Private Information and Simultaneous Bid and Ask
23.7. The Most Natural Context and Dynamic Bargaining
23.8. Axiomatic Approaches: The Nash Bargaining Solution
Bibliographic Notes
Problems
Chapter Twenty-Four. Auctions
24.1. A Typology: Context and Protocol
24.2. Private Values
24.3. Common-Value Contexts: Preliminaries
24.4. Symmetric Equilibria in the Wallet-Game Context
24.5. The Drainage-Tract Context (a.k.a. Maxco–Gambit)
24.6. Conditionally Independent Signals
24.7. Multi-Item Auctions
24.8. Why Do We (Think We) Know More about Auctions Than about Bilateral Bargaining?
Bibliographic Notes
Problems
Chapter Twenty-Five. Matching Markets
25.1. Contexts
25.2. The Classic Marriage Market
25.3. The Lattice Structure of Stable Matches
25.4. Many-to-One Matches: The College-Admissions and Job-Assignment Models
25.5. Salaries and Other Terms and Conditions
25.6. Strategic Considerations
Bibilographic Notes
Problems
Chapter Twenty-Six. Mechanism Design
26.1. Social-Choice Contexts, Mechanisms, Truth Telling, and the Revelation Principle
26.2. The Gibbard–Satterthwaite Theorem
26.3. Nash Implementation: Monotonicity and Maskin’s Theorem
26.4. The Vickrey–Clarke–Groves (VCG) Mechanisms
26.5. The VCG Mechanism and Auctions
26.6. Optimal Auctions: Myerson (1981)
26.7. Mechanism Design for Bilateral Bargaining: Myerson and Sattherthwaite (1983)
26.8. And What about … ? A Bottom Line on Mechanism Design
Bibliographic Notes
Problems
Appendix Nine. Strategic-Form Games
A9.1. Basic Definitions
A9.2. Mixed Strategies: Simple and Otherwise
A9.3. Dominance: What (Probably?) Won’t Happen
A9.4. Rationalizability: A Seemingly Different Take on What Won’t Happen
A9.5. Nash Equilibrium
A9.6. Correlated Equilibria
Bibliographic Notes
Appendix Ten. Extensive-Form Games
A10.1. The Definition of a Finite Extensive-Form Game
A10.2. Diagramming Finite Extensive-Form Games
A10.3. Games with Perfect Recall
A10.4. Strategies and the Corresponding Strategic-Form Game
A10.5. Mixed Strategies, Behaviorally Mixed Strategies, and Kuhn’s Theorem
A10.6. Dominance and Nash Equilibrium
A10.7. Beyond Finite Extensive-Form Games
A10.8. Existence of Nash Equilibria
A10.9. Strategically Equivalent Extensive Forms
Bibliographic Notes
Appendix Eleven. Subgame Perfection (and Credibility)
A11.1. Subgame Perfection
A11.2. Games of Complete and Perfect Information
A11.3. A Different Credibility Issue
Bibliographic Notes
Appendix Twelve. Beliefs and Sequential Rationality
A12.1. Motivation for this Appendix
A12.2. Beliefs and Sequential Rationality
A12.3. On-Path Consistency and Nash Equilibrium
A12.4. Consistency of Off-Path Beliefs
A12.5. The Bottom Line on Consistency of Beliefs (and Sequential Rationality)
A12.6. Trembling-Hand-Perfect and Proper Equilibria
Bibliographic Notes
Appendix Thirteen. Common Knowledge and Games of Incomplete Information
A13.1. Common Knowledge Formalized
A13.2. Games of Incomplete Information
A13.3. (Non)Robustness to Lack of Common Knowledge
Bibliographic Notes
Appendix Fourteen. Forward Induction, Strategic Stability and Beliefs-Based Refinements
A14.1. Motivation
A14.2. Equilibrium Outcomes Instead of Equilibria
A14.3. Strategic Stability: An Overview
A14.4. Disposing of Unstable Equilibrium Outcomes: The Never-a-Weak-Best-Response Test
A14.5. The Intuitive Criterion and Beyond: Intuitively Appealing Stories (Perhaps)
Bibliographic Notes
Appendix Fifteen. Repeated Play: Relationships, Reputation, and the Folk Theorem
A15.1. The Base Model and Some Variations
A15.2. The Repeated Prisoners’ Dilemma
A15.3. The (Straightforward) Folk Theorem(s)
A15.4. Discount Factors Bounded Away From 1
A15.5. (So-Called) Finite Horizons
A15.6. Imperfect Observability, Hidden Information, and Public Equilibria
A15.7. Instrumental Reputation
A15.8. Enduring Private (Incomplete) Information
A15.9. Building a Reputation?
Bibliographic Notes
Appendix Sixteen. The Revelation Principle
A16.1. The Problem
A16.2. Direct Revelation and Truth Telling
A16.3. The Revelation Principles
A16.4. Can You Find a Referee? Practical Implementation of a Contingent Outcome
A16.5. Variations
Bibliographic Notes
Appendix Seventeen. Envelope Theorems
A17.1. A Classical Envelope Theorem and an Extension
A17.2. The Integrated Envelope Theorem
References
Index
