Topics in Applied Game Theory

CEU – Economics Department – winter 2013

Instructor: Andrea Canidio

Email: canidioa@ceu.hu

Office: Nador 11, #406

Office hours: by appointment

Course web-page: TBA

Description

The course is devoted to the discussion of some applications of game theory. It follows the course topics in game theory held in the fall and taught by Adam Szeidl.

Assessment

Each student is expected to present one or two papers out of the reading list, solve one or two problem sets, and produce a research proposal.

Main textbooks

The material explained in class will be taken mostly from:

• Roth, Alvin and Marilda Sotomayor, Two-Sided Matching: A Study in Game Theoretic Modeling and Analysis, Econometric Society Monograph.

• Hart, Oliver, Firms, Contracts and Financial Structure, Oxford Univ. Press, 1995.

However, students will be held responsible for the material covered in class, independently on whether it is covered in the books.

Course Prerequisites

Students should have completed a master level sequence in Microeconomics. Having attended the course topics in game theory held in the fall is highly recommended but not strictly necessary.

Outline

1. Matching Theory: Market Design and Assignment Games.
2. Incomplete Contracts and Organizations.

Reading list

Students should choose some of the following papers for presentations. Each presentation should be 1 hour long (around 20 slides). One week before the scheduled presentation, students should submit a short summary (around 1 page) of their assigned paper, and then schedule a meeting with me. If you prefer to present a paper that is not on this list, just let me know.

Marked Design: applications:

Any paper dealing with kidney exchange, school choice, college admission, ... Some ideas:

• take a look at Alvin Roth's web-page for description of how some matching markets work in practice.

• Something about comparing different types of algorithm in matching problems. (see, for example, Antonio Miralles' work, where he compares different assignment rules – deferred acceptance, boston mechanism, top trading cycle – in school assignment problems under different scenarios).

Generalized Matching Problems (i.e. in between market design and assignment games):

• Alexander Kelso, Vincent Crawford Job Matching, Coalition Formation, and Gross Substitutes, Econometrica, Nov. 1982.
• John William Hatfield, Paul Milgrom Matching With Contracts, AER 2005

Assignment Games: applications:

• Maitreesh Ghatak Screening by the company you keep: joint liability lending and peer selection effect. Economic Journal, Vol.110, Issue 465, July 2000.
• Abhijit Banerjee, Esther Duflo, Maitreesh Ghatak, and Jeanne Lafortune Marry for What? Partner Selection in Modern India.

Assignment Games: more theory:

• Andy Newman and Patrick Legros Beauty is a Beast, Frog is a Prince: Assortative Matching with Nontransferabilities, Econometrica, July 2007
• Cole Mailath Postlewhite:  Efficient Non-Contractible Investments in Large Economies, Journal of Economic Theory, December 2001.

Information and Organizations

• Jacques Crémer, Arm's Length Relationships, The Quarterly Journal of Economics, 1995.
• William Fuchs and Luis Garicano, Matching Problems with Expertise in Firms and Markets, Journal of the European Economic Association, March 2010.
• Luis Garicano  Hierarchies and the Organization of Knowledge in Production, Journal of Political Economy, October 2000

Internal organization of the firm

• Philippe Aghion and Jean Tirole: Formal and Real Authority in Organizations, Journal of Political Economy, February 1997

Corporate finance and incomplete contracts

• Philippe Aghion and Patrick Bolton An Incomplete Contracts Approach to Financial Contracting, The Review of Economic Studies, Jul. 1992.

Markets and and Organizations

• Andy Newman and Patrick Legros Competing for Ownership, Journal of the European Economic Association December 2008

Incomplete Contracts and Trade

• Paola Conoconi, Patrick Legros, and Andrew F. Newman, Trade Liberalization and Organizational Change
• Paul Antras Firms, Contracts, and Trade Structure, Quarterly Journal of Economics,  November 2003

Recent developments in contract theory

• Oliver Hart and John Moore Contracts as reference points, Quarterly Journal of Economics,  February 2008.

Research Proposal

Part of your evaluation will be based on a research proposal. A research proposal should contain the following elements:

1. A clearly stated research question. The research question should be related to one of the topics discussed in class.
2. A review of the relevant literature. The goal of this section is not to summarise the literature, but to explain to what extent existing research help to explain or fail to explain your research question.
3. A simple model.
4. Some intuition regarding what results you can obtain from your model.

The research proposal should be 5 to 10 pages long.

NB. This syllabus will be updated. You are advised to check for the most recent version on the course website.