Course Schedule and Readings for
Price Theory and Market Design
E. Glen Weyl
University of Chicago
Fall 2013
Each lecture includes required readings and references; references are typically more difficult than
the required readings and may be substituted by students interested in a more detailed treatment.
Readings are drawn from a variety of sources: books, articles and even some online sources. The
readings assume you have a basic knowledge (at the level of a standard ECON20100 class or a
bit higher) of the relevant topics and other basic price theory concepts like demand theory. Some
also require a basic grasp of probability, statistics and multivariate calculus. If you don’t have this
for any of the topics, please read the relevant sections of such a textbook before completing the
readings. All readings will be available at
https://chalk.uchicago.edu/webapps/portal/frameset.jsp?tab tab group id= 2 1&url=
%2Fwebapps%2Fblackboard%2Fexecute%2Flauncher%3Ftype%3DCourse
%26id%3D 85402 1%26url%3D
Course notes are available there and on my webpage, http://www.glenweyl.com/teaching.htm.
Slides accompanying each lecture will be made available in the same place. Additionally all lectures
will be video-recorded and available online at http://www.youtube.com/user/ProfGlenWeyl.
A separate, extended reading list is available for students interested in digging deeper. This includes, for each lecture, readings that supply greater technical depth, empirical and policy applications, historical references about the origins of the concepts taught in class, contrasting/alternative
perspectives on the issues considered, related current events and related readings from the humanities (primarily literature and philosophy). This list is not completely up to date with the current
topics of the course, however, as it is from a few years ago; no one has been interested in this list
so I have not updated it. Please let me know if you are interested.
1
Lecture 1: Introduction (October 1)
In that Empire, the Art of Cartography attained such Perfection that the map of a single
Province occupied the entirety of a City, and the map of the Empire, the entirety of a
Province. In time, those Unconscionable Maps no longer satisfied, and the Cartographers
Guilds struck a Map of the Empire whose size was that of the Empire, and which
coincided point for point with it. The following Generations, who were not so fond of
the Study of Cartography as their Forebears had been, saw that that vast Map was
Useless, and not without some Pitilessness was it, that they delivered it up to the
Inclemencies of Sun and Winters. In the Deserts of the West, still today, there are
Tattered Ruins of that Map, inhabited by Animals and Beggars; in all the Land there
is no other Relic of the Disciplines of Geography.
– Jorge Luis Borges, “On Exactitude in Science”
Required
1. “Go East, Young Marijuana Dealer” by Marianne McCune
2. “The ‘Coroboration’ of Theories” by Hilary Putnam
3. “The Economic Approach to Human Behavior” by Gary S. Becker
References
• Capitalism and Freedom by Milton Friedman
• The Structure of Scientific Revolutions by Thomas S. Kuhn (substitutes for the Putnam piece)
Lecture 2: Firm Supply and Duration (October 3)
The element of time is a chief cause of those difficulties in economic investigations
which make it necessary for man with his limited powers to go step by step; breaking
up a complex question, studying one bit at a time, and at last combining his partial
solutions into a more or less complete solution of the whole riddle... The more the issue
is thus narrowed, the more exactly can it be handled: but also the less closely does it
correspond to real life. Each exact and firm handling of a narrow issue, however, helps
towards treating broader issues, in which that narrow issue is contained, more exactly
than would otherwise have been possible. With each step... exact discussions can be
made less abstract, realistic discussions can be made less inexact than was possible at
an earlier stage.
– Alfred Marshall, Principles of Economics
2
Required
1. “The Social Responsibility of Business is to Increase Profits” by Milton Friedman
2. “A Survey of Corporate Governance” by Andrei Shleifer and Robert Vishny
3. Course note “Durable and Storable Factors”
4. Margin Call by J. C. Chandor (you can find this on your own, or there will be a screening in
Social Sciences 122 on Wednesday the 2nd at 6:30; food will be provided and a short discussion
will follow)
References
• On Time by Peter Diamond
• “Corporate Governance” by Jean Tirole from The Theory of Corporate Finance (substitutes
for Shleifer and Vishny)
Lecture 3: Industry Supply and Rents (October 8)
The great advances of civilization, whether in architecture or painting, in science or
literature, in industry or agriculture, have never come from centralized government.
Columbus did not set out to seek a new route to China in response to a majority directive
of a parliament, though he was partly financed by an absolute monarch. Newton and
Leibnitz; Einstein and Bohr; Shakespeare, Milton, and Pasternak; Whitney, McCormick,
Edison, and Ford; Jane Addams, Florence Nightingale, and Albert Schweitzer; no one
of these opened new frontiers in human knowledge and understanding, in literature,
in technical possibilities, or in the relief of human misery in response to governmental
directives. Their achievements were the product of individual genius, of strongly held
minority views, of a social climate permitting variety and diversity.
– Milton Friedman, Capitalism and Freedom
Required
1. “Cattle Cycles” by Sherwin Rosen et al.
2. Lectures 16-17 from Gary S. Becker’s Economic Theory
3. “Power Laws in Economics and Finance” by Xavier Gabaix
References
1. “Market Structure and Productivity” by Chad Syverson
2. “Does Management Matter?” by Nicholas Bloom et al.
3. “The Economics of Superstars” by Sherwin Rosen (complements Gabaix)
3
Lecture 4: Equilibrium and Trade (October 10)
Problem set 1 due at beginning of class
To take an example..in which the division of labour has been very often taken notice of,
the trade of the pin-maker; a workman not educated to this business (which the division
of labour has rendered a distinct trade), nor acquainted with the use of the machinery
employed in it (to the invention of which the same division of labour has probably given
occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and
certainly could not make twenty. But in the way in which this business is now carried on,
not only the whole work is a peculiar trade, but it is divided into a number of branches, of
which the greater part are likewise peculiar trades. One man draws out the wire, another
straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving
the head; to make the head requires two or three distinct operations; to put it on, is a
peculiar business, to whiten the pins is another; it is even a trade by itself to put them
into the paper; and the important business of making a pin is, in this manner, divided
into about eighteen distinct operations, which, in some manufactories, are all performed
by distinct hands, though in others the same man will sometimes perform two or three of
them. I have seen a small manufactory of this kind where ten men only were employed,
and where some of them consequently performed two or three distinct operations. But
though they were very poor, and therefore but indifferently accommodated with the
necessary machinery, they could, when they exerted themselves, make among them
about twelve pounds of pins in a day... Each person, therefore, making a tenth part of
forty-eight thousand pins, might be considered as making four thousand eight hundred
pins in a day. But if they had all wrought separately and independently, and without
any of them having been educated to this peculiar business, they certainly could not
each of them have made twenty, perhaps not one pin in a day; that is, certainly, not
the two hundred and fortieth, perhaps not the four thousand eight hundredth part of
what they are at present capable of performing, in consequence of a proper division and
combination of their different operations.
– Adam Smith, The Wealth of Nations
Required
1. Course note “The Correspondence Principle”
2. “Walrasian Equilibrium in Large, Quasilinear Markets” by Eduardo M. Azevedo et al. (Section
2)
3. “Consumer’s Surplus without Apology” by Robert Willig
4. “Pass-Through as an Economic Tool” by E. Glen Weyl and Michal Fabinger (Sections 1-2)
5. “Ricardo’s Theory of Comparative Advantage” by Arnaud Constinot and Dave Donaldson
4
References
• “The Stability of Equilibrium” by Paul Samuelson
• “The Permanent Income Hypothesis” by Truman Bewley (complements Willig)
• “Protection and Real Wages” by Wolfgag F. Stolper and Paul A. Samuelson
• “Scale Economies, Product Differentiation and the Patterns of Trade” by Paul Krugman
• “Railroads of the Raj” by Dave Donaldson (complements Costinot and Donaldson)
Lecture 5: Centralization v. Decentralization (October 15)
There is no reason that all human existences should be constructed on some one, or
some small number of patterns... Human beings are not like sheep; and even sheep are
not undistinguishably alike. A man cannot get a coat or a pair of boots to fit him,
unless they are either made to his measure, or he has a whole warehouseful to choose
from: and is it easier to fit him with a life than with a coat, or are human beings more
like one another in their whole physical and spiritual conformation than in the shape of
their feet? If it were only that people have diversities of taste that is reason enough for
not attempting to shape them all after one model. But different persons also require
different conditions for their spiritual development; and can no more exist healthily in
the same moral, than all the variety of plants can in the same physical atmosphere and
climate. The same things which are helps to one person towards the cultivation of his
higher nature, are hindrances to another...Such are the differences among human beings
in their sources of pleasure, their susceptibilities of pain, and the operation on them of
different physical and moral agencies, that unless there is a corresponding diversity in
their modes of life, they neither obtain their fair share of happiness, nor grow up to the
mental, moral, and aesthetic stature of which their nature is capable. Why then should
tolerance, as far as the public sentiment is concerned, extend only to tastes and modes
of life which extort acquiescence by the multitude of their adherents?
– John Stuart Mill, On Liberty
Required
1. “The Combinatorial Assignment Problem” by Eric Budish
2. “The Use of Knowledge in Society” by F. A. Hayek
3. “The Data Revolution and Economic Analysis” by Jonathan Levin and Liran Einav
References
• “Dynamics in General Equilibrium Theory” by Stephen Smale
• Sovereign Virtue by Ronald Dworkin (complements Budish)
5
• “On the (Ir)Relevance of Distribution and Labor Supply Distortion to Government Policy”
by Louis Kaplow
• “The Multi-unit Assignment Problem” by Eric Budish and Estelle Cantillon (complements
Budish)
• On Liberty by John Stuart Mill, Chapter 3
• “The Computer and the Market” by Oskar Lange (complements Hayek)
Lecture 6: Payment in Accordance with Product (October
17)
Problem set 2 due at beginning of class
If a man put out the eye of another man, his eye shall be put out. If he break another
man’s bone, his bone shall be broken. If a man knock out the teeth of his equal, his
teeth shall be knocked out.
– Prince Hammurabi of Bablyon, “Code of Laws”
Required
1. “An Economic Theory of Tort Law” by Robert Cooter and Thomas Ulen
2. “A Reduced Form Approach to Behavioral Public Finance” by Sendhil Mullainathan et al.
3. Course note “Prices vs. Quantities”
References
• “Sacred Cars?” by Meredith Fowlie et al.
• “Gasoline Prices, Fuel Economy, and the Energy Paradox” by Hunt Allcott and Nathan Wozny
(complements Mullainathan et al.)
• “Prices vs. Quantities” by Martin Weitzman (substitutes for course note)
• “Property Rules v. Liability Rules” by Louis Kaplow and Steven Shavell (substitutes for
Cooter and Ulen)
• “Information and the Coase Theorem” by Joseph Farrell
• “The Efficiency of Bargaining Under Divided Entitlements” by Ilya Segal and Michael D.
Whinston
6
Lecture 7: Assessing Externalities (October 22)
Ask people in these tent cities if they have been receiving regular aid and they will
tend to tell you they have not. But, says Mr Bellerive, people always say that. He
asked a woman he had seen receiving food the day before, who lives in a camp in the
gardens of his quake-wrecked office, why she had said on television afterwards that she
had received nothing. Because it is the only way to make sure people will continue to
help, she replied. Tent dwellers, used to journalists and do-gooding foreigners, are now
well-aware that they can play to the media.
– The Economist, “Rebuilding Haiti: the Long, Hard Haul”, March 17, 2011
Required
1. Executive summary of the “Stern Review on the Economics of Climate Change”
2. “Contingent Valuation” by Peter Diamond and Jerry Hausman
3. “Expected Externalities and Efficiency” by Richard Cornes and Todd Sandler
4. “The Value of Statistical Life” by W. Kip Viscusi and Joseph E. Aldy
References
• “The Property Rights Doctrine and Demand Revelation under Incomplete Information” by
Kenneth J. Arrow (substitutes for Cornes and Sandler)
• “Rethinking Cost-Benefit Analysis” by Matthew D. Adler and Eric A. Posner
• “Characterization of Satisfactory Mechanisms for the Revelation of Preferences for Public
Goods” by Jerry Green and Jean-Jacques Laffont
Lecture 8: Monopoly (October 24)
Problem set 3 due at beginning of class
(W)e may prepare the way for using, as we go, illustrations drawn from the incidence
of taxation to throw side-lights on the problem of value. For indeed a great part of
economic science is occupied with the diffusion throughout the community of economic
changes which primarily affect some particular branch of production or consumption;
and there is scarcely any economic principle which cannot be aptly illustrated by a
discussion of the shifting of the effects of some tax...
–Alfred Marshall, Principles of Economics
7
Required
1. “Pass-Through as an Economic Tool” by E. Glen Weyl and Michal Fabinger (Sections 3 and
6)
2. “Learning from Seller Experiments in Online Auctions” by Liran Einav et al. (Section 1 and
Subsection 3.2)
References
• “Monopoly and Resource Allocation” by Arnold Harberger
• “Optimal Pricing Mechanisms with Unknown Demand” by Ilya Segal
• “Teaching the Lerner Rule with Uncertainty” by Michael Salinger
• “Estimating the Residual Demand Curve Facing a Single Firm” by Jonathan B. Baker and
Timothy F. Bresnahan (complements Einav et al.)
Lecture 9: Regulation (October 29)
“Good and bad coin cannot circulate together.”
–Sir Thomas Gresham, letter to Queen Elizabeth on the occasion of her ascension
Required
1. Chapter 1 from Jean-Jacques Laffont and Jean Tirole’s A Theory of Incentives in Procurement
and Regulation
2. “Selection in Insurance Markets” by Liran Einav and Amy Finkelstein
3. “Private Information and Insurance Rejections” by Nathaniel Hendren
References
• “Beyond Testing” by Liran Einav et al.
• “The Economic Effect of Regulation” by Paul L. Joskow and Nancy L. Rose
Lecture 10: Product Design (October 31)
David Ben-Gurion dies and, for his service to the Jewish people, receives from God a
choice of where to spend eternity. He requests to see each option before deciding. First
he is shown Hell which, full of decadent food, French wines and beautiful women, seems
a merry way to spend the rest of time. Heaven, on the other hand, is an unending stream
of presentations about the future of the state of Israel and the other eternal questions of
the world. Having spent his life in contemplation on these topics, Smith decides he has
earned a bit of relaxation in the afterlife and opts for Hell. Immediately he is thrown
8
onto the rack, whipped, water-boarded and subjected to other “enhanced” methods of
entertainment Astonished, he says, “I was just here a few minutes ago and things were
so much nicer. What happened?” Lucifer replies, “Then you were a tourist.”
–Classic Israeli joke
Required
1. “The Economics of Internet Markets” by Jonathan Levin
2. “The Leibniz Rule for Multidimensional Heterogeneity” by André Veiga and E. Glen Weyl
3. “What Drives Media Slant?” by Matthew Gentzkow and Jesse Shapiro
4. “Product Design in Selection Markets” by André Veiga and E. Glen Weyl (Section 2)
References
• “A Rational Theory of the Size of Government” by Allan H. Meltzer and Scott F. Richard
(complements Gentzkow and Shapiro)
• An Economic Theory of Democracy by Anthony Downs
• “A Price Theory of Multisided Platforms” by E. Glen Weyl (substitutes for Levin)
• “Contract Pricing in Consumer Credit Markets” by Liran Einav et al. (complements “Leibniz”)
• Exit, Voice and Loyalty by Albert O. Hirschmann
Take-home midterm exam during weekend of the 2-3 will
cover only material through Lecture 9
Lecture 11: Price Discrimination (November 5)
Reasonable charges
Plus some little extras on the side!
Charge ’em for the lice, extra for the mice
Two percent for looking in the mirror twice
Here a little slice, there a little cut
Three percent for sleeping with the window shut
When it comes to fixing prices
There are a lot of tricks he knows
How it all increases, all them bits and pieces
Jesus! It’s amazing how it grows!
–Alain Boublil and Jean-Marc Natel, “Les Miserables: the Musical”
9
Required
1. “The Simple Economics of Optimal Auctions” by Jeremy I. Bulow and John Roberts (Sections
I-IV)
2. “Crime and Punishment” by Gary S. Becker (Section IV)
3. “The Optimal Taxation of Height” by N. Gregory Mankiw and Matthew C. Weinzierl
References
• “The Economics of ‘Tagging’ as Applied to Optimal Income Tax, Welfare Programs and
Manpower Planning” by George A. Akerlof (complements Mankiw and Weinzierl)
• “Pass-Through as an Economic Tool” by E. Glen Weyl and Michal Fabinger (Subsection 6.3)
• Nonlinear Pricing by Robert Wilson
• “Beyond Price Discrimination” by Yongmin Chen and Marius Schwartz
Lecture 12: Intellectual Property (November 7)
Problem set 4 due at beginning of class
For if the legislature should appoint a pecuniary reward for the inventors of new machines, etc., they would hardly ever be so precisely proportional to the merit of the
invention as this is. For here, if the invention be good and such as is profitable to
mankind, he will probably make a fortune by it; but if it be of no value he also will reap
no benefit.
– Adam Smith, Lectures on Jurisprudence
Required
1. “The Process of Creative Destruction” by Joseph Schumpeter
2. “Crime and Punishment” by Gary S. Becker
3. Course note “Intellectual Property”
4. “Intellectual Property” by Nancy Gallini and Suzanne Schotchmer
References
• Capitalism, Socialism and Democracy by Joseph Schumpeter (substitutes for Schumpeter)
• “Creating Markets for New Vaccines. Parts I and II” by Michael Kremer (complements course
notes and Schumpeter)
• “Intellectual Property Rights and Innovation” by Heidi Williams
10
• “Do Fixed Patent Terms Distort Innovation? Evidence from Cancer Clinical Trials” by Eric
Budish et al.
• “Patent Buyouts” by Michael Kremer
• “Market Power Screens Willingness-to-Pay” by E. Glen Weyl and Jean Tirole (substitutes for
course note)
Lecture 13: Imperfect Competition (November 12)
People of the same trade seldom meet together, even for merriment and diversion, but
the conversation ends in a conspiracy against the public, or in some contrivance to raise
prices.
– Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations
Required
1. “A Theory of Oligopoly” by George J. Stigler
2. “Pass-Through as an Economic Tool” by E. Glen Weyl and Michal Fabinger (Sections 4 and
5)
3. “What Really Matters in Auction Design?” by Paul D. Klemperer
References
• “The Oligopoly Solution Concept is Identified” by Timothy F. Bresnahan (complements Einav
and Levin)
• “The Economics of Tacit Collusion” by Marc Ivalid et al. (substitutes for Stigler)
• “Empirical Industrial Organization” by Liran Einav and Jon Levin
Lecture 14: Competition Policy (November 14)
“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade
or commerce among the several States, or with foreign nations, is declared illegal. Every person
who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or
persons, to monopolize any part of the trade or commerce among the several States, or with foreign
nations, shall be deemed guilty of a felony.”
– John Sherman, “Sherman Antirust Act of 1890”
11
Required
1. “The First-Order Approach to Merger Analysis” by Sonia Jaffe and E. Glen Weyl
2. “2010 United States Horizontal Merger Guidelines”
3. “Product Design in Selection Markets” by André Veiga and E. Glen Weyl (Sections 3-5)
4. “Traditional Cournot Analysis” and “Concentration Indices and Industry Profitability” by
Jean Tirole
5. “Entry and Competition in Concentrated Markets” by Timothy F. Bresnahan and Peter C.
Reiss
References
• “Of Unlimited Competition” by A.-Augustin Cournot, Chapter 8 of Researches into the Mathematical Principles of the Theory of Wealth (substitutes for Tirole’s “Traditional Cournot
Analysis”)
• “Antitrust Evaluation of Horizontal Mergers” by Joseph Farrell and Carl Shapiro (substitutes
for merger guidelines)
• “The Gains form Merger or Collusion in Product-Differentiated Industries” by Jonathan B.
Baker and Timothy F. Bresnahan (complements Jaffe and Weyl)
Lecture 15: Redistribution (November 19)
Problem set 5 due at beginning of class
There, but for the grace of God, go I.
–John Bradford
Required
1. Course note “Redistribution”
2. “Cardinal Utility in Welfare Economics and in the Theory of Risk-taking” by John C. Harsanyi
3. “The Elasticity of Taxable Income with Respect to Marginal Tax Rates” by Emmanuel Saez
et al.
4. “Taxation and the Allocation of Talent” by Benjamin B. Lockwood et al.
12
References
• “Measuring Marginal Utility by Reactions to Risk” by William Vickrey (substitutes for
Harsanyi)
• “Some Simplified Formulae for Optimal Income Taxation” by Avinash Dixit and Agnar
Sandmo (substitutes for course note)
• “Using Elasticities to Derive Optimal Income Tax Rates” by Emmanuel Saez (substitutes for
course note)
• Fairness versus Welfare by Louis Kaplow and Steve Shavell (substitutes for Harsanyi)
• “Inequality Among World Citizens” by François Bourguignon and Christian Morrisson
• “The Evolution of Top Incomes” by Thomas Piketty and Emmanuel Saez
• “De Gustibus non est Taxandum” by Benjamin Lockwood and Matthew C. Weinzierl
• “Taxing Leisure Complements” by Louis Kaplow
• “Labor Supply and Taxes” by Michael P. Keane (substitutes for Saez et al.)
• “The Case for Progressive Taxation” by Peter Diamond and Emmanuel Saez
• “Optimal Taxation in Theory and Practice” by Gregory N. Mankiw et al.
Lecture 16: Public Goods and Social Choice (November 21)
The legitimate object of government, is to do for a community of people, whatever they
need to have done, but can not do, at all, or can not, so well do, for themselves – in
their separate, and individual capacities.
– Abraham Lincoln, Fragment on Government
Required
1. “Asymmetric Information Bargaining Problems with Many Agents” by George J. Mailath and
Andrew Postlewaite
2. “Holdout in the Assembly of Complements” by Scott Duke Kominers and E. Glen Weyl
3. “When Does Majority Rule Supply Public Goods Efficiently?” by Ted C. Bergstrom
4. “Public-Good Provision in Large Economies” by Felix J. Bierbrauer and Martin F. Hellwig
(Section 1)
13
References
• “Concordance Among Holdouts” by Scott Duke Kominers and E. Glen Weyl (substitutes for
Kominers and Weyl)
• The Gridlock Economy by Michael Heller
• “The Pure Theory of Public Expenditure” by Paul A. Samuelson
• “Measuring the Compactness of Political Districting Plans” by Roland G. Fryer Jr. and
Richard Holden (complements Bergstrom)
• “Storable Votes” by Alessandra Casella
• “Arrow’s Theorem and the Gibbard-Satterthwaite Theorem” by Philip J. Reny (substitutes
for Bergstrom)
• “A Regression Discontinuity Test of Strategic Voting and Duverger’s Law” by Thomas Fujiwara
• Collective Choice and Social Welfare by Amartya K. Sen
Lecture 17: Quadratic Voting (November 26)
It has been said that democracy is the worst form of government except all the others
that have been tried.
– Sir Winston S. Churchill
Required
1. “Quadratic Vote Buying” by E. Glen Weyl
2. “Voting Squared” by Eric A. Posner and E. Glen Weyl
References
• “Quadratic Voting as Efficient Corporate Governance” by Eric A. Posner and E. Glen Weyl
• “A Solution to the Collective Action Problem in Corporate Reorganizations” by Eric A. Posner
and E. Glen Weyl
• “Electoral Engineering” by Jacob K. Goeree and Jingjing Zhang (complements Weyl and
Azevedo)
• Economists and Societies by Marion Fourcade
14
There will be no lecture on December 3. I will hold a review
session and talk about some philosophical/welfare economics
issues if there aren’t enough questions. Attendance is optional, but the final problem set, number 6, will be due that
day so you must come to turn it in.
15