JOMO KENYATTA UNIVERSITY OF AGRICULTURE AND TECHNOLOGY
HFIN 3103: MICROECONOMIC ANALYSIS COURSE OUTLINE
Course Purpose
To impart the core elements of modern economic theory and applications to provide a foundation for
further study and research. Emphasis is given to applications of relevance and interest to practitioners in
the financial sector.
Course Objectives
At the end of the course it is expected that the student will be able to:
1. Evaluate the classical theories of microeconomics.
2. Apply the theories of microeconomics to solve economic problems.
Course Description
Classical microeconomics
Classical Dichotomy Segments the Economy: Real & Financial Sides
Quantity Theory of Money
Theories of Market failure
Game theory
Overview of the Game theory
Utility Theory
Game Trees
Complete information
Incomplete information
Games of chance
The Payoff function and equilibrium
Normal and Strategic Form Games and Matrices
Saddle Points, Mixed Strategies and the Minimax Theorem
Nash’s Bargaining Problem and Cooperative Games
Industrial organization
Introduction
1 A historical appraisal
2 Oligopoly theory vs. the SCP paradigm
3 Variations of prices and welfare
Price indices
Welfare variations
Consumer surplus
4 Producer surplus and deadweight welfare loss
5 Market and market power
Definition of the market
Concentration measures
Degree of Monopoly
Concentration indices and degree of monopoly
Volatility measures
6 Homogeneous Product Oligopoly Models
Cournot oligopoly. Quantity competition
The geometry of the Cournot model
Stability of the Cournot equilibrium
Cournot vs. Bertrand
Asymmetric information and contract design
a) Incentives
Formal Contracts
Relational Contracts
Career Concerns, Reputation, and the Ratchet Effect
b) Decision Rights
Classics
Ex Ante Incentives
Ex Post Control
c) Dynamic Contracting
Renegotiation and Incomplete Contracting
Dynamic Risk-Sharing and Agency
Dynamic Financial Contracting
d) Multi-Agent Contracting
Mechanism Design
Moral Hazard in Teams
Common Agency
Collusion and Cooperation
Contract Externalities
Non-Financial Motives in Agency
Intrinsic Motivation
Bargaining Theory
a) Functions of Collective Bargaining
b) Bargaining Models
c) Negotiation strategies
Industry-wide Bargaining
Pattern Bargaining
Coordinated Bargaining
d) The Bargaining Process
Preparation for Negotiations: Formulation of Demands
Trading Points and Counterpoints
Costing Out the Contractual Changes
e) Behavioral Theories of the Negotiation Process
Distributive and Integrative Bargaining Models
Attitudinal Structuring Tactics
f) Content of Agreements: Wage and Salary Issues
Theories of the firm and organizations
a) Forms of ownership
Private
Public
Joint sector
b) Theories on objectives of Firm
Profit maximization theory
Baumol’s theory (Sales Rev. Max)
Marris’ Hypothesis (Growth rate Max)
William’s model (Managerial Utility Function)
Behavioral Theories:
Simons satisficing model
Cyert & March model
Auction theory
a) Motivation and importance of Auctions.
b) Rules of some of the “standard/simple” Auctions.
c) Information Structure
d) Bidders’Valuation/(Preferences).a. Private Values.b. Interdependent Valuationc. Common
Values/General.
e) The Independent-Private-Values (IPV) Model:
f) The Independent-Interdependent-Values (IIV) Model
g) The Common-Values Model
h) The role of Risk-Aversion and The number of Bidders
i) Multiple-Units Auctions.
Teaching Methodology
Lectures, Case Analyses, Group discussions.
Instructional Materials:
Tablet, Smartboard, LCD projector & Computers, Flipcharts, televisions, videos
Course Evaluation
CATs/Assignment/Presentation 40 %
Final Examination 60 %
Course Text Books
Jehle, G. A. and Reny, P. J., 2011. Advanced Microeconomic Theory. Prentice Hall.
Varian, H. R., 1992. Microeconomic Analysis, W. W. Norton & Company.
Mas-Colell, A., Whinston, M. D. & Green, J. R., 2008. Microeconomic Theory. Oxford University Press.
Reference textbooks
Andrew Schotter (2001), Microeconomics: A Modern Approach, 3rd edition, Addison Wesley
Hal R. Varian (2003), Intermediate Microeconomics: A Modern Approach, 6th edition, Norton.
Wyn Morgan, Micahael Katz & Harvey Rosen (2006), Microeconomics, European Edition,
McGraw-Hill
David Besanko and Ronald R. Braeutigam (2005), Microeconomics, 2nd edition, Wiley.
Course Journals
American Economic Review
Journal of Economic Theory
Labor Economics
Reference Journals
Quarterly Review of Economics and Finance
Review of Economic Studies
GROUP ONE
JOY ANYANGO
HDB324-C004-0215/2021
Task: Theories of Market Failure
GROUP TWO
IBRAHIM ABDI GURE
HDB324-C004-0060/2021 HFIN 3103:
MICROECONOMIC ANALYSIS WORK ALLOCATION
MIRITI BRENDA KARIMI
HDB324-C004-0472/2021
Task: Normal and Strategic form gains and Matrices
GROUP THREE
EKIRU JOSEPH KODI
HDB324-C004-0214/2021
Task: Market and Market Power
GROUP FOUR
GIFT NDEGWA THAMA
HDB324-C004-0282/2021
STEVE JUMA MARLENI
HDB324-C004-2833/2019
Task: Homogeneous Product Oligopoly Models
GROUP FIVE
HERBERT OMONDI ASER
HDB324-C004-0062/2021
Task: Asymmetric Information and Contract Design
Group SIX
ESTHER NJERI MUTHONI
HDB324-C004-1224/2020
Notes:
Task: Bargaining Theory
i. The workSEVEN
Group to be submitted in a PDF format
ii. The assignment must be submitted in an official format bearing formal details of the student
iii. YATTANI date
Submission IBRAE
shallDOKO
be CoB, 21st May,
HDB324-C004-0283/2021 2021. No late
submission shall be
Task: Auction Theory
accepted
GROUP EIGHT
ABDULLAHI OSMAN SHALE
HDB324-C004-0061/2020
MIYONGO GEORGE ONYANGO
HDB324-C004-0474/2021
Task: Theories of The Firm and Organizations
GROUP NINE
STEPHEN OMONDI KISUKWA
HDB324-C004-0473/2021
