School of Economics

Academic Year 2015-16

Term 1
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COURSE CODE & COURSE TITLE

Instructor Name : Massimiliano Landi
Email : landim@smu.edu.sg
Tel : 6828 0872
Office : 0437 SOE

PREREQUISITES

Intermediate Microeconomics B
Intermediate Mathematics for Economics

These prerequisites apply to exchange students too who therefore should approach me before the
bidding process starts should they need any clarification on the level and rigor of this course. Past
experience shows this class is considered very hard by most exchange students.

COURSE DESCRIPTION

Advanced microeconomics continues the path started in Intermediate Microeconomics B: to provide

the building blocks that allow students to get a deep understanding of economic issues and to
progress with comfort in their upper level Economics courses. Students planning to enroll in Industrial
Organization, the Economics of Asymmetries of Information, among the others, would find this course
particularly beneficial to them.

Throughout the semester, students will be exposed to more advanced topics in Economic theory which
include Mechanism Design, General Equilibrium (without and with uncertainty) and Search. Students
will be exposed to both theoretical models and applications to real life so as to deepen their
understandings of the basic Economic principles. In particular, students will be exposed to examples
related to contracts for managers, insurance schemes, auctions, portfolio management, rationing in the
credit market, resale markets, and on the job search, among the others. This course is intense in
problem solving.

LEARNING OBJECTIVES

By the end of this course, students will have increased and deepened their understanding of economic
modelling and have enlarged the set of technical skills that will allow them to move onto upper level
courses with confidence and satisfaction. Students will be equipped with a set of technical skills that will
come handy if they decide to pursue further studies as they will also learn how to write and solve
mathematical models of abstract logical thinking.

In addition, students will be equipped with a method to tackle effectively problem solving. Developing
such skills is beneficial to all, and in particular to those with a more practical approach.

By the end of this course, therefore, students will be equipped with tools and knowledge that fits their
needs for further economic courses and for their future jobs.

ASSESSMENT METHODS

Class Participation : 10%

Mid-term Test : 40%
Final Examination : 50%
Total : 100%

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Participation is graded quite informally: students are participating whenever they return the homework
assignments on time and, when coming to class, they contribute to the learning experience. This
mostly requires that students behave politely and follow the simple norms of conduct spelled below
(see Class Sessions and Expectations) and to participate in a lecture notes sharing activity.
The midterm is a 2 hour exam that covers the Moral Hazard and Adverse Selection.
The final is a 3 hour exam that covers the part on Auctions and Search.
Both midterm and final requires problem solving. The homework assignment provides a good
example of the type of questions asked at the exams. Both midterm and final are closed book exams.
Calculators and any other electronic devices are not allowed.

ACADEMIC INTEGRITY

All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication,
facilitation of acts of academic dishonesty by others, unauthorized possession of exam questions, or
tampering with the academic work of other students) are serious offences.

All work (whether oral or written) submitted for purposes of assessment must be the students own
work. Penalties for violation of the policy range from zero marks for the component assessment to
expulsion, depending on the nature of the offense.

When in doubt, students should consult the instructors of the course. Details on the SMU Code of
Academic Integrity may be accessed at http://www.smuscd.org/resources.html.

CLASS SESSIONS AND EXPECTATIONS

Class sessions are three hours per week. Each session consists of a detailed explanation of the
models discussed throughout the course and their applications. Time will also be devoted to go
through crucial steps of the homework assignments.

This course is laptop free. Students are expected to spend most of their time taking notes and
discussing about the material covered in class.

Students are expected to come to class on time and to behave politely throughout the lecture. Eating
and drinking is allowed only during class breaks.

Finally, students are expected to be motivated and focused, able to work independently but also to
contribute to the classroom environment. Students should not expect to be spoon fed. The emphasis
in this course is on the learning process and not on the memorization of few formulas. In addition,
there is no text book for this course (see below). Students who like a completely packaged and fully
serviced course will find this format difficult to digest.

RECOMMENDED TEXT AND READINGS

There is no text book. The following list of readings is available in the Library Course
Reserve, and will constitute the main bibliographical source. Students can borrow a copy of
these books and make photocopies of the relevant chapters for personal use. Students are
not expected to read all the chapters from all the books. This list is sufficiently rich so that
students can eventually find the reference that fits their style and needs the best. Books
marked with an asterisk are for the intrepid. In addition I will provide some notes during the
semester to complement the material. Taking good notes during lectures remains the best
way to learn.

To review the basics of Microeconomics:

McAfee Introduction to Economic Analysis (MF) the creative commons introduction to

Microeconomics. Permanent link: http://www.mcafee.cc/Introecon/IEA2009.pdf
*MasColell, Whinston and Green (1995). Microeconomic Theory. Oxford University Press (MWG)

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General reference the whole course
Campbell Incentives. Motivation and the Economics of Information. Cambridge University Press.
(DC)

Mechanism Design:

a. Moral Hazard and Adverse Selection

Macho-Stadler and Perez Castrillo An Introduction to the Economics of Information Oxford
University Press (MSPC)

b. Auctions:
*Salanie The Economics of Contracts MIT Press (S)
*Krishna Auction Theory Academic Press (K)
Menezes and Monteiro An Introduction to Auction Theory Oxford University Press (MM)

Search
McAfee Introduction to Economic Analysis (MF)

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WEEKLY LESSON PLAN

Week Topic Readings

Introduction to the course: Rules of the game. MF Ch 5

1 5 Jan 15, Mon
Kuhn-Tucker conditions and expected utility DC Ch 2
MSPC Ch 2, 3
2 Mechanism Design: Moral hazard part 1
S Ch 1, 5
Mechanism Design: Moral hazard part 2 MSPC Ch 2, 3
3
Homework 1 S Ch 1, 5

Mechanism Design: Moral hazard part 3 and Adverse MSPC Ch 2, 3

4
selection part 1 S Ch 1, 5
Mechanism Design: Adverse selection part 2 MSPC Ch 4
5
Homework 2 S Ch 2

Mechanism Design: Adverse selection part 3 K Ch 2, 4

6 MM Ch 3
DC Ch 6
K Ch 2, 4
Mechanism Design: Auctions part 1
7 MM Ch 3
Midterm
DC Ch 6
8 Recess
Mechanism Design: Auctions part 2 MWG Ch 15, 16
9

Mechanism Design: Auctions part 3

MWG Ch 15, 16
10 Homework 3

Search part 1 DD Ch 8, 10
11
DC Ch 10
DD Ch 8, 10
12 Search part 2
DC Ch 10
Search part 3
13 Homework 4 DC Ch 10

14 Revision Week
15 Final Examination

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