CONTENTS
Preface = xiii
PART ONE : INDIVIDUAL DECISION MAKING = 3
Chapter 1. Preference and Choice = 5
1.A Introduction = 5
1.B Preference Relations = 6
1.C Choice Rules = 9
1.D The Relationship between Preference Relations and Choice Rules = 11
Exercises = 15
Chapter 2. Consumer Choice = 17
2.A Introduction = 17
2.B Commodities = 17
2.C The Consumption Set = 18
2.D Competitive Budgets = 20
2.E Demand Functions and Comparative Statics = 23
2.F The Weak Axiom of Revealed Preference and the Law of Demand = 28
Exercises = 36
Chapter 3. Classical Demand Theory = 40
3.A Introduction = 40
3.B Preference Relations : Basic Properties = 41
3.C Preference and Utility = 46
3.D The Utility Maximization Problem = 50
3.E The Expenditure Minimization Problem = 57
3.F Duality : A Mathematical Introduction = 63
3.G Relationships between Demand, Indirect Utility, and Expenditure Functions = 67
3.H Integrability = 75
3.I Welfare Evaluation of Economic Changes = 80
3.J The Strong Axiom of Revealed Preference = 91
Appendix A : Continuity and Differentiability Properties of Walrasian Demand = 92
Exercises = 96
Chapter 4. Aggregate Demand = 105
4.A Introduction = 105
4.B Aggregate Demand and Aggregate Wealth = 106
4.C Aggregate Demand and the Weak Axiom = 109
4.D Aggregate Demand and the Existence of a Representative Consumer = 116
Appendix A : Regularizing Effects of Aggregation = 122
Exercises = 123
Chapter 5. Production = 127
5.A Introduction = 127
5.B Production Sets = 128
5.C Profit Maximization and Cost Minimization = 135
5.D The Geometry of Cost and Supply in the Single-Output Case = 143
5.E Aggregation = 147
5.F Efficient Production = 149
5.G Remarks on the Objectives of the Firm = 152
Appendix A : The Linear Activity Model = 154
Exercises = 160
Chapter 6. Choice Under Uncertainty = 167
6.A Introduction = 167
6.B Expected Utility Theory = 168
6.C Money Lotteries and Risk Aversion = 183
6.D Comparison of Payoff Distributions in Terms of Return and Risk = 194
6.E State-dependent Utility = 199
6.F Subjective Probability Theory = 205
Exercises = 208
PART TWO : GAME THEORY = 217
Chapter 7. Basic Elements of Noncooperative Games = 219
7.A Introduction = 219
7.B What Is a Game? = 219
7.C The Extensive Form Representation of a Game = 221
7.D Strategies and the Normal Form Representation of a Game = 228
7.E Randomized Choices = 231
Exercises = 233
Chapter 8. Simultaneous-Move Games = 235
8.A Introduction = 235
8.B Dominant and Dominated Strategies = 236
8.C Rationalizable Strategies = 242
8.D Nash Equilibrium = 246
8.E Games of Incomplete Information : Bayesian Nash Equilibrium = 253
8.F The Possibility of Mistakes : Trembling-Hand Perfection = 258
Appendix A : Existence of Hash Equilibrium = 260
Exercises = 262
Chapter 9. Dynamic Games = 267
9.A Introduction = 267
9.B Sequential Rationality, Backward Induction, and Subgame Perfection = 268
9.C Beliefs and Sequential Rationality = 282
9.D Reasonable Beliefs and Forward Induction = 292
Appendix A : Finite and Infinite Horizon Bilateral Bargaining = 296
Appendix B : Extensive Form Trembling-Hand Perfect Nash Equilibrium = 299
Exercises = 301
PART THREE : MARKET EQUILIBRIUM AND MARKET FAILURE = 307
Chapter 10. Competitive Markets = 311
10.A Introduction = 311
10.B Pareto Optimality and Competitive Equilibria = 312
10.C Partial Equilibrium Competitive Analysis = 316
10.D The Fundamental Welfare Theorems in a Partial Equilibrium Context = 325
10.E Welfare Analysis in the Partial Equilibrium Model = 328
10.F Free-Entry and Long-Run Competitive Equilibria = 334
10.G Concluding Remarks on Partial Equilibrium Analysis = 341
Exercises = 344
Chapter 11. Externalities and Public Goods = 350
11.A Introduction = 350
11.B A Simple Bilateral Externality = 351
11.C Public Goods = 359
11.D Multilateral Externalities = 364
11.E Private Information and Second-Best Solutions = 368
Appendix A : Nonconvexities and the Theory of Externalities = 374
Exercises = 378
Chapter 12. Market Power = 383
12.4 Introduction = 383
12.B Monopoly Pricing = 384
12.C Static Models of Oligopoly = 387
12.D Repeated Interaction = 400
12.E Entry = 405
12.F The Competitive Limit = 411
12.G Strategic Precommitments to Affect Future Competition = 414
Appendix A : Infinitely Repeated Games and the Folk Theorem = 417
Appendix B : Strategic Entry Deterrence and Accommodation = 423
Exercises = 428
Chapter 13. Adverse Selection, Signaling, and Screening = 436
13.A Introduction = 436
13.B Informational Asymmetries and Adverse Selection = 437
13.C Signaling = 450
13.D Screening = 460
Appendix A : Reasonable-Beliefs Refinements in Signaling Games = 467
Exercises = 473
Chapter 14. The Principal-Agent Problem = 477
14.A Introduction = 477
14.B Hidden Actions (Moral Hazard) = 478
14.C Hidden Information(and Monopolistic Screening) = 488
14.D Hidden Actions and Hidden Information : Hybrid Models = 501
Appendix A : Multiple Effort Levels in the Hidden Action Model = 502
Exercises = 507
PART FOUR : GENERAL EQUILIBRIUM = 511
Chapter 15. General Equilibrium Theory : Some Examples = 515
15.A Introduction = 515
15.B Pure Exchange : The Edgeworth Box = 515
15.C The One-Consumer, One-Producer Economy = 525
15.D The 2 ×2 Production Model = 529
15.E General Versus Partial Equilibrium Theory = 538
Exercises = 540
Chapter 16. Equilibrium and Its Basic Welfare Properties = 545
16.A Introduction = 545
16.B The Basic Model and Definitions = 546
16.C The First Fundamental Theorem of Welfare Economics = 549
16.D The Second Fundamental Theorem of Welfare Economics = 551
16.E Pareto Optimality and Social Welfare Optima = 558
16.F First-Order Conditions for Pareto Optimality = 561
16.G Some Applications = 566
Appendix A : Technical Properties of the Set of Feasible Allocations = 573
Exercises = 575
Chapter 17. The Positive Theory of Equilibrium = 578
17.A Introduction = 578
17.B Equilibrium : Definitions and Basic Equations = 579
17.C Existence of Walrasian Equilibrium = 584
17.D Local Uniqueness and the Index Theorem = 589
17.E Anything Goes : The Sonnenschein-Mantel-Debreu Theorem = 598
17.F Uniqueness of Equilibria = 606
17.G Comparative Statics Analysis = 616
17.H T$$\hat a$$tonnement Stability = 620
17.I Large Economies and Nonconvexities = 627
Appendix A : Characterizing Equilibrium through Welfare Equations = 630
Appendix B : A General Approach to the Existence of Walrasian Equilibrium = 632
Exercises = 641
Chapter 18. Some Foundations for Competitive Equilibria = 652
18.A Introduction = 652
18.B Core and Equilibria = 652
18.C Noncooperative Foundations of Walrasian Equilibria = 660
18.D The Limits to Redistribution = 665
18.E Equilibrium and the Marginal Productivity Principle = 670
Appendix A : Cooperative Game Theory = 673
Exercises = 684
Chapter 19. General Equilibrium Under Uncertainty = 687
19.A Introduction = 687
19.B A Market Economy with Contingent Commodities : Description = 688
19.C Arrow-Debreu Equilibrium = 691
19.D Sequential Trade = 694
19.E Asset Markets = 699
19.F Incomplete Markets = 709
19.G Firm Behavior in General Equilibrium Models Under Uncertainty = 713
19.H Imperfect Information = 716
Exercises = 725
Chapter 20. Equilibrium and Time = 732
20.A Introduction = 732
20.B Intertemporal Utility = 733
20.C Intertemporal Production and Efficiency = 736
20.D Equilibrium : The One-Consumer Case = 743
20.E Stationary Paths, Interest Rates, and Golden Rules = 754
20.F Dynamics = 759
20.G Equilibrium : Several Consumers = 765
20.H Overlapping Generations = 769
20.I Remarks on Nonequilibrium Dynamics : T$$\hat a$$tonnement and Learning = 778
Exercises = 782
PART FIVE : WELFARE ECONOMICS AND INCENTIVES = 787
Chapter 21. Social Choice Theory = 789
21.A Introduction = 789
21.B A Special Case : Social Preferences over Two Alternatives = 790
21.C The General Case : Arrow's Impossibility Theorem = 792
21.D Some Possibility Results : Restricted Domains = 799
21.E Social Choice Functions = 807
Exercises = 812
Chapter 22. Elements of Welfare Economics and Axiomatic Bargaining = 817
22.A Introduction = 817
22.B Utility Possibility Sets = 818
22.C Social Welfare Functions and Social Optima = 825
22.D Invariance Properties of Social Welfare Functions = 831
22.E The Axiomatic Bargaining Approach = 838
22.F Coalitional Bargaining : The Shapley Value = 846
Exercises = 850
Chapter 23. Incentives and Mechanism Design = 857
23.A Introduction = 857
23.B The Mechanism Design Problem = 858
23.C Dominant Strategy Implementation = 869
23.D Bayesian Implementation = 883
23.E Participation Constraints = 891
23.F Optimal Bayesian Mechanisms = 897
Appendix A : Implementation and Multiple Equilibria = 910
Appendix B : Implementation in Environments with Complete Information = 912
Exercises = 918
MATHEMATICAL APPENDIX = 926
M.A Matrix Notation for Derivatives = 926
M.B Homogeneous Functions and Euler's Formula = 928
M.C Concave and Quasiconcave Functions = 930
M.D Matrices : Negative(Semi)Definiteness and Other Properties = 935
M.E The Implicit Function Theorem = 940
M.F Continuous Functions and Compact Sets = 943
M.G Convex Sets and Separating Hyperplanes = 946
M.H Correspondences = 949
M.I Fixed Point Theorems = 952
M.J Unconstrained Maximization = 954
M.K Constrained Maximization = 956
M.L The Envelope Theorem = 964
M.M Linear Programming = 966
M.N Dynamic Programming = 969
Index = 971
