10917 Public Economics 1

Credits: 3 advanced credits in Economics

Prerequisites: 36 credits, including Price Theory I, Price Theory II, Price Theory III. Students must also fulfill all English requirements and take bibliographic instruction in the Library.

Required: Macroeconomics I, Macroeconomics II, Calculus for Students of Economics and Management, Econometrics

Author: Mordechai E. Schwarz

Objectives: The course focuses on public aspects of micro-economics, and particularly the role of government in a free society.

Topics: Welfare economics: general equilibrium in competitive economy (Arrow-Debreu model); Edgeworth box, Transformation curve and criteria for assessment of resources allocation; competitive allocation mechanism; consumer surplus and welfare economics theorems. Social utility: Axiomatization of social utility, efficiency, equity, distributive justice and envy. Normative schools to assess social utility and distributive justice: utilitarianism, Rawls, Nozick and Nash's attitudes, social utility, social preferences and social choice, axiomatization of social choice, May Theorem and Arrow's impossibility theorem. Market failure (I): Consumption externalities; Samuelson's Condition; Coase Theorem; Property rights and externalities; corrective taxes and public policy. Production externalities; freedom of occupation and externalities; public goods; private provision and strategic provision of public goods; Samuelson's condition for efficient provision of public goods; Lindhal's solution. Market failure (II): Net Social surplus; non-competitive markets; monopoly dead-weight loss; rent-seeking contests; lotteries and contests; technological innovations; non-cooperative models; public policy in non-competitive markets; cooperative models; market failures caused by asymmetric information; moral hazard and adverse selection; Appendix: indices of market power and market concentration. Public finance: elementary tax economics, optimal taxation; Ramsey rule; optimal income tax; progressive taxation; capital income tax; optimal portfolio; tax incidence in static and dynamic economies; taxation reforms. Political economy: Anarchy and the rule of law; political equilibrium; the median voter theorem; deadweight loss implications; bureaucracy and corruption; de-jure and de-facto political power; Appendix: dynamic games.

1There is some overlap in the content of this and other courses. For details, see Overlapping Courses.

Students may write a seminar paper in this course, although it is not required.