Contents
1 Introduction
1.1 The Fundamental Theorems
1.1.1 The Pareto Optimum
1.1.2 General Equilibrium
1.1.3 The Two Fundamental Weifare Theorems
1.2 Return to the Hypotheses
1.3 The Government's Role
Bibliography
1 Coilective Choice
2 The Aggregation of Preferences
2.1 Arrow's Theorem
2.2 Noncomparable Cardinal Preferences
2.3 Comparable Ordinal Preferences
2.4 Comparable Cardinal Preferences
2.5 Conclusion
2.6 Appendix A: Proof of Arrow's Theorem
2.7 Appendix B: Theories of Justice
2.7.1 Llfilitarianism
2.7.2 Rawls's Difference Principie
2.7.3 Recent Developments
2.7.4 Nozick's Historical Approach
2.7.5 Conclusion
Bibliography
3 Cost-Benefit Analysi
3.1 Measures of Welfare
3.2 First-Best
3.3 Second-Best
3.3.1 Shadow Prices
3.3.2 Non,narkef Goods
3.3.3 Incomplete Markets
Bibliography
4 Implementation
4.1 Dominant Strategy Equilibrium
4.2 Nash Equilibrium
4.3 Refinements of the Nash Equilibrium
4.4 Bayesian Equilibrium
4.5 Appendix A: Proof of the Gibbard-Satterthwaite
Theorem
4.6 Appendix B: Proof of Maskin's Theorem
Bibliography
II Public Economics
5 Public Goods
5.1 The Optirnality Condition
5.2 Implementing the Optimum
5.2.1 The Subscription Equilibrium
5.2.2 Voting Equilibrium
5.2.3 The Lindahl Equilibrium
5.2.4 Personalized Taxation
5.2.5 A Planning Procedure
5.2.6 The Pivot Mechanism
5.3 The Property of Public Goods
5.4 The Importance of the Free-Rider Problem
5.5 Local Public Goods
5.6 Appendix: Characterization of VCG Mechanisrns
Bibliography
6 Externa! Effects
6.1 The Pareto Optimum
6.2 Implementing the Optimum
6.2.1 The Coinpetitive Equilibrium
6.2.2 Quotas
6.2.3 Subsidies for Depoilution
6.2.4 The Rights to Poliute
6.2.5 Taxation
6.2.6 The Integration of Firms
6.2.7 A Compensation Mechanism
6.3 Must Prices or Quantities Be Regulated?
6.4 Coase's Theorem
Bibliography
7 Nonconvexities
7.1 Consequences of Nonconvexities
7.1.1 Nonconvex Preferences
7.1.2 Nonconvex Sets of Production
7.2 Convexification by Numbers
7.3 Regulation of Natural Monopolies
7.3.1 Marginal Cost Pricing
7,3.2 Second-Best Pricing of Regulated Firms
7.4 Deregulation
Bibliography
III Industrial Organization
8 General Equilibrium of Imperfect Competition
8.1 Three Difficulties
8.1.1 The Firms' Objectives
8.1.2 Price Normalization
8.1.3 The Quasi-concavity of Profit
8.2 Subjective Demand Equilibrium
8;3 Objective Demand Equilibrium
8.3.1 Equilibrium in Quantities
8.3.2 Equilibrium in Prices
8.4 Conclusion
Bibliography
9 Prices and Quantities
9.1 Monopoly
9.1.1 Social Distortion
9.1.2 How to Avoid Distortions
9.1.3 The Case of Durable Goods
9.2 Price Discrimination
9.2.1 First Degree
9.2.2 Second Degree
9.2.3 Third Degree
9.3 Oligopoly
9.3.1 Cournot's Oligopoly
9.3.2 The Bertrand Equilibrium
9.3.3 Sketches of Resolutions of the Paradox
9.3.4 Strategic Substitutes and Complements
Bibliography
10 Product Choice
10.1 Definitions
10.1.1 A Modei of Vertical Differentiation
10.1.2 A Model of Horizontal Differentiation
10.2 Differentiation and Monopoly
10.2.1 Optimai Quality Choice
10.2.2 Nonobservable Quaiity
10.2.3 Choice of Number of Products to Introduce
10.3 Differentiation and Oligopoly
10.3.1 The Maximal Differentiation Principie
10.3.2 Entry and Number of Products
Bibliography
11 Long-Term Entry and Competition
11.1 Sustainability and Contestability
11.2 Preemption
11.3 Limit Price and Predation
11.3.1 Limit Price
11.3.2 Predation
11.4 Research and Development
Bibliography
12 Vertical Relations
12.1 Double Marginalization
12.2 Justifications of Vertical Constraints
12.2.1 Retaiier Effort Incentive
12.2.2 Price Discrimination
12.2.3 Tied Sales
12.2.4 Reduction of Price Competition
.12.3 Comparison of Different Practices
12.4 Elements of Law
Bibliography
IV Incomplete Markets
13 Elements of the Theory of Incomplete Markets
13.1 The General Framework
13.2 Existence of Equilibrium
13.3 Inefficiency of Equilibrium
13.4 Equilibria with Production
13.5 Application to International Trade
13.6 Conclusion
13.7 Appendix: Nominal Assets
Bibliography
Index