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KAFP 3355 - Public Economics Level 3

Type d'enseignement : Lecture and tutorials

Semester : Autumn 2017-2018

Number of hours : 36

Language of tuition : English

Pre-requisite

The class will focus on substantive issues and not formalization. However, students should be familiar with solving basic optimization problems (constrained and unconstrained) and have a solid knowledge of intermediate microeconomics. A student should master (or be quickly grasp) the content of textbooks such as: Walter Nicholson, Microeconomic Theory: Basic Principles and Extensions Hal Varian, Intermediate Microeconomics. A basic knowledge of statistics and empirical methods in applied economics is required to make the most out of the readings, although intuitive explanations of relevant empirical findings will be given in class. A good reference is: Stock, James H. and Mark W. Watson. Introduction to Econometrics. We remind you that this class is compulsory for all EPP stream students who also have to attend the Math Camp that will take place between August 28th and August 31st.

Course Description

This class is designed for students wiling to develop their economic profile rather than for those who wish to prepare the administrative competitive examinations. (1) The course starts by introducing the discipline of public economics and present the different functions of government in modern market economies and how it evolved over the last century. (2) It then reviews basic microeconomic results in a world under perfect competition where the invisible hand is at work and where public intervention cannot be justified on the basis of efficiency. (3) We continue by studying the issue of taxation, notably: a. the distinction between the statutory and economic incidence of taxes b. how the government, under different constraints in terms of tax instruments, can raise that revenue at a minimal efficiency cost. We will then explore various causes of market failures and investigate to which extent public intervention can mitigate them. (4) The first category of failures is externality. (5) The second category is public goods. We will define the different types of public goods and see how to best organize their provision. (6) The third category of market failure find its root in asymmetric information, giving rise to adverse selection and moral hazard issues. We will look at applications in different markets and see how private information can justify the provision of social insurance, an increasingly prominent function of the government. (7) The fourth market failure, we will study is the issue of market power and concentrated markets. To do this, we will introduce tools and equilibrium concepts from game theory. We will go through a few applications of the principals we saw: (8) A lecture on education (9) Discrimination (10) We will conclude if time allow by investigating the consequences of behavioral issues, such as individual failure to optimize, for public economics.

Teachers

MALGOUYRES, Clément (Economiste)

Course validation

- Final exam (50%) - A group homework (50%) – it will be due around half-way in the class.

Required reading

  • Several chapters from: Hindriks and Myles (2013) Intermediate Public Economics 2nd edition, MIT Press
  • Summers, L. (1989). “Some Simple Economics of Mandated Benefits,” American Economic Review, 177-183.
  • Moretti, Enrico "Estimating the Social Return to Higher Education: Evidence From Longitudinal and Repeated Cross-Sectional Data", Journal of Econometrics 121(1-2), 2004
  • Fack, G. et Grenet, J. (2010) When do Better Schools Raise Housing Prices? Evidence from Paris Public and Private Schools », Journal of Public Economics, vol. 94, n° 1-2, p. 59-77
  • Liran Einav Amy Finkelstein, Selection in Insurance Markets: Theory and Empirics in Pictures, Journal of Economics Perspectives Vol. 25, No. 1, Winter 2011 (pp. 115-38)

Additional required reading

  • Jonathan Gruber, Public Finance and Public Policy, 3rd Edition or more recent
  • John Leach, A Course in Public Economics
  • For microeconomics: Walter Nicholson, Microeconomic Theory: Basic Principles and Extensions