MW24.3 - Lecture Quantitative Economics II (Summer 2021) - 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
To protect you and your contacts during the SARS-CoV-2 pandemic, the module will be offered online.
You will receive the lecture as weekly videos (see below). 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. The first exercise will be on 20.4., 14:15. You find a link to the Zoom room in Moodle
Exam
Fri., 6. August, 10-12.
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:
July 2004, October 2004, January 2006, Februar 2007
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.