MW24.3 - Lecture Quantitative Economics II (Summer 2022) - Master Program in Economics

There are many interesting topics in quantitative economics. In the past we did Auction theory, Information Economics, Bayesian Econometrics, Resampling and Models with Mixed Effects. This year we will study Bargaining Theory:
Online teaching:
The module will be offered online. Despite my repeated demands, the administration could not provide us with a room for the course. Given my positive experience with online teaching so far, having no room should not be too much of a burden. Lectures are provided as videos. Weekly homeworks are provided in moodle. Exercises will start online.
  • In this field, online teaching is more effective than traditional teaching. In a traditional lecture large groups of students sit far away from the blackboard. Students in such a classroom who find the professor's monologue too fast can only try to copy the entire monologue and hope to understand later. Student who find the monologue too slow need patience. This is not an environment for an inspired discussion.

    Online videos allow you to follow your own learning speed. You can slow down the playback or fast forward according to your own preferences. Weekly online exercises encourage you to actively engage with the material and provide regular feedback. A discussion board and Q&A sessions allows you interact with the teacher and with other students after you had a chance to understand the material.

    As a result, students learn better if we provide online teaching and are clearly more successful in the exam than students with traditional teaching.

  • I do care about interaction with students. The traditional professor's monologue in the classroom is not really interactive teaching. The online format offers a better learning experience and more room to interact. This is a lecture with a rather technical topic. In such a context the online format offers benefits for learning that can't be obtained with old-fashioned lecture room formats.
Lecture:
During the term you will in each week obtain a new set of videos. You can choose when (and how often) 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. We will discuss the homework in (interactive) exercises.
Discussion board:
Please use the discussion board in Moodle.
Exercises:
Thursdays, 8:15-9:45. You find a link to the Zoom room in Moodle
Exam:
Wed. 27.7., 11:00-12:00.
The final grade is 2/3 the result of a final exam and 1/3 the weekly homework.
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.1516
Nash's theorem, applications.1617
Risk aversion, applications (bribery, asset ownership).1718
Discussion of Nash's axioms.1819
Applications (moral hazard in teams).1920
The strategic approach: Rubinstein's model.2021
Strategies in bargaining in the alternating offers model. Nash equilibrium.2122
Subgame perfect equilibrium.2223
Constant discount rates, fixed bargaining cost, finitely divisible pies.2324
Outside options2425
More than two players, comparison Rubinstein/Nash2526
Incomplete information.2627
Markets and decentralised trade.2728
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 solve these problems and tries to explain how 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?
Aims
Students should understand the main paradigms of axiomatic bargaining theory (Nash, Kalai-Smorodinsky) and of strategic bargaining theory (Rubinstein's alternating offer game). Optionally the course can include applications to markets.