Microeconomics II : General equilibrium existence and efficiency
Instructor: Mario Tirelli
This course-module provides a first understanding of the possible outcomes of agents’
interactions for an entire economy. In particular, it focuses on those interactions consisting
in trading commodities within perfectly competitive markets and explains their possible
outcomes through the notion of competitive equilibrium. Of competitive equilibria it
explores the welfare properties and some other key positive properties, such as existence
and uniqueness. The remaining part of the course is devoted to discuss two important
cases in which some economic interactions do not take place in competitive markets;
classical market failures such as externalities and public goods.
Textbook references
Required:
Mas-Colell, A., Whinston, M., and Green, J., Microeconomic Theory, Oxford University
Press, New York, 1995. (Referred to as ʺMWGʺ)
Laffont J.J., Fundamentals of Public Economics, MIT Press, Cambridge, 1994
Class handouts (http://host.uniroma3.it/docenti/tirelli/Master/Master.html).
Supplemental references: *
Mas-Colell, A., The Theory of General Equilibrium a differentiable approach, Econometric
Society Monograph 9, Cambridge University Press, 1985 [Advanced!]
Varian, Hal R., Microeconomic Analysis, Norton, New York, 1992
Also
Debreu G. (1959), Theory of Value, monograph 17, Cowles Foundation, Yale Un. Press
Handbooks of Mathematical Economics (HME), vol. II, edited by K.J. Arrow and M.D.
Intrilligator, North Holland Publisher. . K. Arrow and
Takayama A., Mathematical Economics, Cambridge University Press, II edition, 1985
*
These references consist of textbooks which are only meant to help students to find supplemental material on the
course topics. They should not be taken as substitute of the required material.
General Competitive Analysis
A. Competitive equilibrium and its welfare properties
Lecture 1: Competitive equilibria of a pure exchange economy 1: general definition and
Edgeworth box characterization. (MWG, Chapter 15 A,B)
Lecture 2: Competitive equilibria of a pure exchange economy 2: welfare properties and
Pareto efficiency. (MWG, Chapter 15 B)
Lecture 3: Competitive equilibria of a simple production economy: 1-consumer x 1producer. (MWG, Chapter 15 C)
Lecture 4: More general economies with production: definition and characterization
(MWG, Chapter 16 A,B, 17 A-B)
Lecture 5: Welfare properties of an equilibrium: The two fundamental theorems of
welfare (MWG, Chapter 16 C-D)
Lecture 6: Calculus approach to the welfare theorems (MWG, Chapter 16 E-F + class
handout 1)
Supplemental:
•
•
Varian, Chapter 17, -17.2, 17.6-17.9, 18 up to 18.8. (not 18.5)
Takayama, Chapter 2, C
B. Competitive equilibrium and its positive properties
Lecture 7: Equilibrium existence (MWG, Chapter 17 C)
Lecture 8: Local uniqueness, regularity and comparative statics (MWG, Chapter 17 D,G)
Lecture 9: From local to global uniqueness (MWG, Chapter 17 F)
Supplemental:
•
•
•
•
Varian, Chapter 17.4, 17.5, 21.3-21.5
Mas-Colell 5.3, 5.4 (on regularity)
Takayama, Chapter 2, D,E (on welfare theorems)
HME vol. II, chapter 15, or Debreu (1959) (on equilibrium existence)
Market failures and their equilibrium consequences
Lecture 10: Externalities 1 (Laffont Chapters 1.1-1.5)
Lecture 11: Externalities 2 (Laffont Chapters 1.1-1.5 + class handout 2)
Lecture 12: Public goods (Laffont Chapters 2.1-2.4, 2.7.1)