TAILIEUCHUNG - Public economics

Are you curious about how we should deal with issues like climate change, international terrorism, decision-making in democracies, migration, an ageing population, social and health insurance? Do you wonder whether the market can always regulate itself, or whether policy is sometimes required to step in? Don't you dare to ask questions that don’t have straightforward answers? The Public Economics track offers you the possibility to do just that | Public economics Mattias K. Polborn prepared as lecture notes for Economics 511 MSPE program University of Illinois Department of Economics Version August 8 2009 Contents I Competitive markets and welfare theorems 6 1 Welfare economics 7 Introduction. 7 Edgeworth boxes and Pareto efficiency. 8 Exchange. 12 First theorem of welfare economics. 14 Efficiency with production. 15 Application Emissions reduction. 19 Second theorem of welfare economics. 24 Application Subsidizing bread to help the poor . 25 Limitations of efficiency results. 27 Redistribution . 28 Market failure . 28 Utility theory and the measurement of benefits. 29 Utility maximization and preferences. 30 Cost-benefit analysis. 33 Partial equilibrium measures of welfare. 39 Applications of partial welfare measures . 42 Welfare effects of an excise tax. 42 Welfare effect of a subsidy. 43 Price ceiling . 43 Agricultural subsidies and excess production . 45 Non-price-based allocation systems. 46 II Market failure 50 2 Imperfect competition 51 Introduction. 51 Monopoly in an Edgeworth box diagram. 52 1 The basic monopoly problem. 53 Two-part pricing. 54 A mathematical example of a price-discriminating monopolist. 56 Policies towards monopoly. 58 Natural monopolies. 60 Cross subsidization and Ramsey pricing. 61 Patents . 63 Application Corruption. 63 Introduction to game theory. 65 Cournot oligopoly . 68 3 Public Goods 71 Introduction and classification. 71 Efficient provision of a public good. 73 Private provision of public goods. 74 Clarke-Groves mechanism. 77 Applications. 80 Private provision of public goods Open source software. 80 Importance of public goods for human history Guns germs and steel . 80 4 Externalities 82 Introduction. 82 Pecuniary vs. non-pecuniary externalities. 82 Application .

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