Econ 301: Topics in Microeconomics
Spring 2008
Bard College
Instructor Information: Sanjaya DeSilva
Albee 213
x7072
desilva@bard.edu
Office Hours:
Tuesday 11.30-12.30
Wednesday 10.30-11.30
Or by appointment.
Overview of the Course:
We will begin with a review of the standard neoclassical model of the household where utility
maximizing households choose their consumption levels, labor supply and savings. We will then
expand on this basic framework so that interesting theoretical and policy questions can be better
addressed. In the weekly meetings, I will use the first half to present more sophisticated modeling
techniques that incorporate phenomena such as asymmetric information, the technology of
household production and consumption, externalities and irrational behavior. The methodologies
will be drawn from constrained optimization models, game theory and behavioral economics. In
the second half of every meeting, a student will lead the discussion; this discussion will initially
involve the presentation of relevant theoretical models from recent primary journal articles.
Towards the latter part of the semester, students will work on developing their own models that
are designed to answer interesting theoretical or policy questions. For example, a student may
want to model the household’s decision-making process that led them to take risky sub-prime
loans that they have had to default on a few years down the road. Another student may want to
examine whether it makes sense for New York City to ban restaurants from using trans-fats. At a
more conceptual level, a student could examine why people in wealthier countries tend to spend
more of their leisure time playing video games or watching TV alone rather than engaging in
social activities (a concept sometimes called “bowling alone”). I will present my own research on
the household’s decision to invest in the education of children. Students can choose any topic
they like as long as it can be modeled with the microeconomic theory of the household. The
course will culminate in a final paper that includes a discussion of the research question, review
of the literature, and the presentation of a model that you constructed along with simulations of
the model that help to answer your research questions.
Prerequisites:
A high level of knowledge and interest in mathematical economics for two reasons: 1) we will
read primary journal articles published in the top economics journals that are quite technical and
mathematical; and 2) for your final project, you will be expected to construct your own
mathematical model that simulates a household’s decision making process in an area of your
interest. At a minimum, students should have taken Intermediate Microeconomics and Calculus
II. Calculus III and/or Mathematical Economics is recommended.
Expectations:
This is a seminar course that meets once a week. Because much of the work for this course will
be done in class, attendance is mandatory. A large amount of independent work (with my
guidance) is required. 30% of your grade will be assigned to your research project; proposal,
literature review, theoretical model, application of the model and the final paper. 40% of your
grade will be determined by homework assignments and quizzes. The remaining 30% will be
allocated to class participation and presentations.
Organization of the Course (Subject to Change):
Note on Readings: We will not have time to cover all readings in their entirety. I will pick
relevant sections from some of these articles. The others serve as references for your projects and
homework assignments.
Part I: Review of Basic Consumer Choice Theory
Recommended Readings:
Walter Nicholson, Intermediate Microeconomics
Hal Varian, Intermediate Microeconomics
Part II: Labor Supply and Time Allocation Models
Week 3
Gary S. Becker, A Theory of the Allocation of Time. The Economic Journal, Vol. 75,
No. 299, 493-517. Sep., 1965.
Robert T. Michael; Gary S. Becker, On the New Theory of Consumer Behavior
The Swedish Journal of Economics, Vol. 75, No. 4. (Dec., 1973), pp. 378-396.
Reuben Gronau, Leisure, Home Production, and Work--the Theory of the Allocation
of Time Revisited, The Journal of Political Economy, Vol. 85, No. 6. (Dec., 1977), pp.
1099-1123.
Week 4
Jeff Biddle and Daniel Hamermesh, Sleep and the Allocation of Time, Journal of
Political Economy, Vol. 98, No. 5, Part I, Oct 1990, Part I, III, V
Mark Aguiar and Erik Hurst, Measuring Trends in Leisure: The Allocation of Time over
Five Decades, Federal Reserve Bank of Boston Working Paper, 06-2, January 2006,
PARTS 1, 2, 3
F. Thomas Juster and Frank P. Stafford, The Allocation of Time: Empirical Findings,
Behavioral Models, and Problems of Measurement, Journal of Economic Literature, Vol
XXIX, June 1991 PARTS I, II, IV.1, IV.2, IV.4, V, VII.1, VII.3
Reuben Gronau, The Theory of Home Production: The Past Ten Years, Journal of Labor
Economics, Vol. 15, No. 2 (April 1997)
David Cutler, Edward Glaeser, Jesse Shapiro, Why Have Americans Become More
Obese? Journal of Economic Perspectives, Vol. 17, No. 3, Summer 2003 pp. 93-95,
104-112
Part III: Inter-temporal Models: Savings
Martin Feldstein, Rate of Return, Taxation and Personal Savings, Economic Journal 88351, Sept 1978
Agnar Sandmo, The Rate of Return and Personal Savings, The Economic Journal,
Vol. 91, No. 362. (Jun., 1981), pp. 536-540.
Robert E. Hall, Stochastic Implications of the Life Cycle-Permanent Income
Hypothesis: Theory and Evidence, The Journal of Political Economy, Vol. 86,
No. 6. (Dec., 1978), pp. 971-987
Martin Browning; Annamaria Lusardi, Household Saving: Micro Theories and Micro
Facts, Journal of Economic Literature, Vol. 34, No. 4. (Dec., 1996), pp. 1797-1855.
Mark Aguiar, Erik Hurst, Consumption vs. Expenditure, NBER Working Paper No.
10307, 2004.
F. Thomas Juster and Frank P. Stafford, The Allocation of Time: Empirical Findings,
Behavioral Models, and Problems of Measurement, Journal of Economic Literature, Vol
XXIX, June 1991 PART IV.3
Part IV: Intertemporal Models: Education
David Card, The Causal Model of Education on Earnings, University of California,
Berkely Center for Labor Economics Working Paper no. 2, 1998
Gary Becker, The Allocation of Time and Goods over Time (1975), reprinted in the
Economics of Human Behavior.
David Card, Earnings, Schooling and Ability Revisted, NBER Working Paper 4832,
1994
Assaf Razin, Optimum Investment in Human, Review of Economic Studies, 39(4), 1972
Michael Spence, Job Market Signaling, The Quarterly Journal of Economics, Vol. 87,
No. 3. (Aug., 1973), pp. 355-374
José-Víctor Ríos-Rull, Working in the Market, Working at Home, and the
Acquisition of Skills: A General-Equilibrium Approach, The American Economic
Review, Vol. 83, No. 4. (Sep., 1993), pp. 893-907
Sanjaya DeSilva and Gautam Sethi, Learners and Crammers: The Political Economy of
Education Policy, 2007
Part V: Choice Under Uncertainty
Robert E. Hall, Stochastic Implications of the Life Cycle-Permanent Income
Hypothesis: Theory and Evidence, The Journal of Political Economy, Vol. 86, No. 6.
(Dec., 1978), pp. 971-987.
Pranab Bardhan and Chris Udry, Risk and Insurance in the Agricultural Economy, Ch. 8
in Development Microeconomics, Oxford U. Press, 1999
Kahneman, Daniel, and Amos Tversky (1979) "Prospect Theory: An Analysis of
Decision under Risk", Econometrica, XLVII (1979), 263-291
Amos Tversky and Daniel Kahneman. Advances in prospect theory: Cumulative
representation of uncertainty. Journal of Risk and Uncertainty, 5:297–323, 1992
Part VI: Extensions on Preferences and Utility Functions: Social interaction, norms, altruism etc.
Gary S. Becker, A Theory of Social Interactions, The Journal of Political Economy,
Vol. 82, No. 6. (Nov. - Dec., 1974), pp. 1063-1093
George A. Akerlof , A Theory of Social Custom, of Which Unemployment May be
One Consequence , The Quarterly Journal of Economics, Vol. 94, No. 4. (Jun., 1980),
pp. 749-775.
David Romer, The Theory of Social Custom: A Modification and Some Extensions,
The Quarterly Journal of Economics, Vol. 99, No. 4. (Nov., 1984), pp. 717-727
George Akerlof and Rachel Kranton, Economics and Identity, Quarterly Journal of
Economics, CXV, 2000.
David Austen-Smith and Roland G. Fryer, The Economic Analysis of “Acting White”,
Quarterly Journal of Economics, May 2005.
Rafael Lalive, Alejandra Cattaneo, Social Interactions and Schooling Decisions, October
1, 2004
Assar Lindbeck; Sten Nyberg; Jorgen W. Weibull, Social Norms and Economic
Incentives in the Welfare State, The Quarterly Journal of Economics, Vol. 114, No. 1.
(Feb., 1999), pp. 1-35
Assar Lindbeck, Sten Nyberg, Raising Children to Work Hard: Altruism, Work Norms
and Social Insurance, Quarterly Journal of Economics, Nov 2006
Part VII: Extensions on Preferences and Utility Functions: Critiques of Rational Choice,
Exogenous Preferences etc.
Amartya Sen, The Formulation of Rational Choice, American Economic Review 84: 2,
May 1994, 385-90
Amartya Sen, Behaviour and the Concept of Preference Economica, N.S., August 1973,
v. 40, iss. 159, pp. 241-59
Gary S. Becker, Irrational Behavior and Economic Theory, The Journal of Political
Economy, Vol. 70, No. 1. (Feb., 1962), pp. 1-13
John F. Chant, Irrational Behavior and Economic Theory: A Comment, The Journal
of Political Economy, Vol. 71, No. 5. (Oct., 1963), pp. 505-510
Armin Falk, Ernst Fehr, Christian Zehnder, Fairness Perceptions and Reservation
Wages—The Behavioral Effects of Minimum Wage Laws, Quarterly Journal of
Economics, Quarterly Journal Economics, November 2006.
Botond Koszegi and Matthew Rabin, A Model of Reference Dependent Preferences,
Quarterly Journal of Economics, Nov 2006
Botond Koszegi, Emotional Agency, Quarterly Journal of Economics, 2006
George-Marios Angeletos; David Laibson; Andrea Repetto; Jeremy Tobacman; Stephen
Weinberg, The Hyperbolic Consumption Model: Calibration, Simulation, and
Empirical Evaluation, , The Journal of Economic Perspectives, Vol. 15, No. 3.
(Summer, 2001), pp. 47-68.
David Cutler, Edward Glaeser, Jesse Shapiro, Why Have Americans Become More
Obese? Journal of Economic Perspectives, Vol. 17, No. 3, Summer 2003 pp. 93-95,
112-116
Part VIII: Student Presentation of Original Research