Oliver Kirchkamp

MW24.3 - Lecture Quantitative Economics II (Summer 2023) - Master Program in Economics

In the module we explore quantitative and mathematical methods of economic theory. We focus on decision processes involving multiple stakeholders, their negotiations and their agreements. Even with conflicting interests, decision makers can reach mutually beneficial outcomes through negotiation and compromise. We discuss what makes some decision makers more willing to cooperate and make commitments, and what makes other decision makers more reluctant to compromise. Understanding the negotiation and decision-making processes that shape sustainable outcomes supports the understanding of topics like climate negotiations, the management of shared resources, the participation of stakeholders and the balancing of diverse interests
Online teaching:
The module will be offered online.

This is a course with a more technical topic. For this course the online format offers benefits for learning that we miss in a traditional lecture room. Online videos allow you to follow your own learning speed. You can (and you should) pause your video, slow down or fast forward according to your individual learning speed. Weekly online homeworks give you regular feedback and help you to engage with the material. Online discussions and exercises provide and enhance interaction.

As a result, the online format gives you a much better learning experience and more room to interact. For this course, students are clearly more successful with online teaching than students with traditional teaching. In the past, with traditional classroom teaching, about 25% of the students failed the course. Now, with on-line teaching, fewer than 5% of the students fail.

Lecture:
During the term you will in each week obtain a new set of videos. You can choose when (and how) you watch these videos. These videos will remain available until the end of the term. I recommend to follow a routine: Watch the weekly videos on always the same day at always the same time.
Homework:
Each week you submit a brief homework (see the Moodle-page of the course). The homework counts for the final grade.
Discussion board:
Please use the discussion board in Moodle.
Online Q+A:
You find the details for the Q+A meeting in Moodle.
Exam:
Thu., 20.7.2023, 10:00.
The final grade is 2/3 the result of a final take-home exam and 1/3 the weekly homework. I assume that, pursuant to the »Prüfungsordnung«, the weekly homework and the take home exam constitute a single partial exam.
Prerequisites:
Some game theory (e.g. as covered in BW24.2), basic calculus (here are some basic differentiation rules)
Literature:
  • Kalai, E. & M. Smorodinsky (1975): “Other Solutions to Nash`s Bargaining Problem”, Econometrica, 43, 513-518.Jstor
  • Muthoo, A. (1999): Bargaining theory with applications. Cambridge Univ. Press, Cambridge
  • Osborne, M. J. & A. Rubinstein (1990): Bargaining and markets. Academic Press, San Diego.
  • Roth, A. E. (1995): Bargaining Experiments , ch. 4 in The Handbook of Experimental Economics, ed. by J. H. Kagel & A. E. Roth.
  • Shaked, A. and J. Sutton (1984), Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model , Econometrica 52, 1351 1364 Jstor
Outline:
TopicLecture in week...Exercise in week...
Introduction, von Neumann-Morgenstern Utility, Nash's axioms.1415
Nash's theorem, applications.1516
Risk aversion, applications (bribery, asset ownership).1617
Discussion of Nash's axioms.1718
Applications (moral hazard in teams).1819
The strategic approach: Rubinstein's model.1920
Strategies in bargaining in the alternating offers model. Nash equilibrium.2021
Subgame perfect equilibrium.2122
Constant discount rates, fixed bargaining cost, finitely divisible pies.2223
Outside options2324
More than two players, comparison Rubinstein/Nash2425
Incomplete information.2526
Markets and decentralised trade.2627
Past exams
 
Motivation:
Consider a situation where two agents obtain gains from cooperation. This could be an exchange that is mutually beneficial or a cooperation in a political or social environment. How should the agents divide the proceeds from their joint project? How is the ratio of goods in an exchange, how the result of a political or personal settlement determined? Market equilibria assume a large number of agents and the presence of a Walrasian auctioneer — assumptions that are not always fulfilled. Bargaining theory attempts to address this issue, studying a situation where a small number of players find a settlement in a distributive conflict. Is the settlement always efficient or is it found only after time consuming and costly negotiations? Who is the winner and who the looser of a settlement? How is bargaining power determined? How, finally, can we compare such a bargaining solution with market equilibria?
Learning aims
Students should understand the main paradigms of axiomatic bargaining theory (Nash, Kalai-Smorodinsky) and of strategic bargaining theory (Rubinstein's alternating offer game).