Intermediate Microeconomics, Games and
Behaviour
Universiteit Utrecht – ECB2VMIE
Written by Lisanne Louwerse
Summary
,Table of content
Week 1 – Uncertainty and time .............................................................................................. 4
1 Economics in times of a climate change .......................................................................... 4
1.2 Uncertain outcomes ................................................................................................... 4
1.2.1 Risk attitudes .......................................................................................................... 4
1.2.2 Measures of risk aversion ....................................................................................... 7
1.3 Decisions over time ................................................................................................... 9
1.3.1 Consistent time preferences - discounted utility .................................................. 10
1.3.2 Inconsistent time preferences - hyperbolic discounting ....................................... 13
1.3.3 Self-control and self-awareness ........................................................................... 14
Week 2 – Strategic interaction: single encounters ................................................................ 16
1.4 The role of firms ................................................................................................. 16
1.4.1 Environmental policy when firms choose quantities simultaneously ............ 16
1.4.2.1 Emission taxes when firms compete in prices for homogeneous goods ......... 19
1.4.2.2 Emission taxes when firms compete in prices for heterogeneous products ...... 20
Week 3 – Strategic interaction: sequential encounters ......................................................... 22
1.4.3 First and second mover advantages ................................................................ 22
1.5 The role of technology and strategic investments .............................................. 23
1.6 Conflict of interests and bargaining over pollution ............................................ 28
Other notes .................................................................................................................... 29
Week 4 – Information imperfections in single encounters ................................................... 31
1.7 Incomplete information and beliefs about the world.......................................... 31
1.8 Climate auctions ................................................................................................. 32
1.8.1 The English auction with independent private values .................................... 35
1.8.2 Second Price (Vickrey) auction with independent private values .................. 37
1.8.3 The First Price auction with independent private values ................................ 39
1.8.4 The Dutch auction with independent private values ...................................... 42
1.8.5 Which auction format should the seller choose when bidders have independent
private values? ............................................................................................................... 42
1.8.6 Relaxing assumptions regarding the bidders. ................................................. 44
Week 6 – Information imperfections in sequential encounters ............................................ 47
1.9 Incomplete information and beliefs about the world.......................................... 47
1.10 Solutions to market failure due to information asymmetries ............................. 50
1.10.1 Bio certificates and signaling ............................................................................. 51
1.10.2 Abatement standards and screening .............................................................. 56
2
, Week 7 – Social context ....................................................................................................... 58
2. Economics of a regenerative (and degenerative) society .......................................... 58
2.1 Fair wages .......................................................................................................... 64
2.2.1 Contracts and implicit incentives ................................................................... 68
2.2.2 Intrinsic motivation......................................................................................... 70
Week 8 – Non-standard preferences and beliefs .................................................................. 73
2.3 Identity theory discrimination ............................................................................ 73
2.4 The role of consumers ........................................................................................ 77
2.4.1 Predictable irrationalities – non-stable preferences ........................................ 78
2.4.2 How much we care (for others) ...................................................................... 82
2.4.3 Empirical evidence ......................................................................................... 89
Other notes ............................................................................................................................ 92
Some models step-by-step ................................................................................................. 92
Auction types ..................................................................................................................... 93
Calculating expected revenue and expected price in auctions ......................................... 93
Relevant articles ................................................................................................................... 95
Week 1 .............................................................................................................................. 95
Week 4 .............................................................................................................................. 96
Week 6 .............................................................................................................................. 97
Week 7 .............................................................................................................................. 97
Week 8 .............................................................................................................................. 98
3
Behaviour
Universiteit Utrecht – ECB2VMIE
Written by Lisanne Louwerse
Summary
,Table of content
Week 1 – Uncertainty and time .............................................................................................. 4
1 Economics in times of a climate change .......................................................................... 4
1.2 Uncertain outcomes ................................................................................................... 4
1.2.1 Risk attitudes .......................................................................................................... 4
1.2.2 Measures of risk aversion ....................................................................................... 7
1.3 Decisions over time ................................................................................................... 9
1.3.1 Consistent time preferences - discounted utility .................................................. 10
1.3.2 Inconsistent time preferences - hyperbolic discounting ....................................... 13
1.3.3 Self-control and self-awareness ........................................................................... 14
Week 2 – Strategic interaction: single encounters ................................................................ 16
1.4 The role of firms ................................................................................................. 16
1.4.1 Environmental policy when firms choose quantities simultaneously ............ 16
1.4.2.1 Emission taxes when firms compete in prices for homogeneous goods ......... 19
1.4.2.2 Emission taxes when firms compete in prices for heterogeneous products ...... 20
Week 3 – Strategic interaction: sequential encounters ......................................................... 22
1.4.3 First and second mover advantages ................................................................ 22
1.5 The role of technology and strategic investments .............................................. 23
1.6 Conflict of interests and bargaining over pollution ............................................ 28
Other notes .................................................................................................................... 29
Week 4 – Information imperfections in single encounters ................................................... 31
1.7 Incomplete information and beliefs about the world.......................................... 31
1.8 Climate auctions ................................................................................................. 32
1.8.1 The English auction with independent private values .................................... 35
1.8.2 Second Price (Vickrey) auction with independent private values .................. 37
1.8.3 The First Price auction with independent private values ................................ 39
1.8.4 The Dutch auction with independent private values ...................................... 42
1.8.5 Which auction format should the seller choose when bidders have independent
private values? ............................................................................................................... 42
1.8.6 Relaxing assumptions regarding the bidders. ................................................. 44
Week 6 – Information imperfections in sequential encounters ............................................ 47
1.9 Incomplete information and beliefs about the world.......................................... 47
1.10 Solutions to market failure due to information asymmetries ............................. 50
1.10.1 Bio certificates and signaling ............................................................................. 51
1.10.2 Abatement standards and screening .............................................................. 56
2
, Week 7 – Social context ....................................................................................................... 58
2. Economics of a regenerative (and degenerative) society .......................................... 58
2.1 Fair wages .......................................................................................................... 64
2.2.1 Contracts and implicit incentives ................................................................... 68
2.2.2 Intrinsic motivation......................................................................................... 70
Week 8 – Non-standard preferences and beliefs .................................................................. 73
2.3 Identity theory discrimination ............................................................................ 73
2.4 The role of consumers ........................................................................................ 77
2.4.1 Predictable irrationalities – non-stable preferences ........................................ 78
2.4.2 How much we care (for others) ...................................................................... 82
2.4.3 Empirical evidence ......................................................................................... 89
Other notes ............................................................................................................................ 92
Some models step-by-step ................................................................................................. 92
Auction types ..................................................................................................................... 93
Calculating expected revenue and expected price in auctions ......................................... 93
Relevant articles ................................................................................................................... 95
Week 1 .............................................................................................................................. 95
Week 4 .............................................................................................................................. 96
Week 6 .............................................................................................................................. 97
Week 7 .............................................................................................................................. 97
Week 8 .............................................................................................................................. 98
3
