PP5403 Economic Foundations for Public Policy
Professor Xi Lu & Professor Ashutosh Dinesh Thakur
Email: sppxil@nus.edu.sg , adthakur@nus.edu.sg
Lee Kuan Yew School of Public Policy
National University of Singapore
2023/24 Semester 2
Room: SR3-1, Tuesdays 9am-Noon
TA: Bhavya Gupta , Liuqing Yu
Email: bhavya.gupta@u.nus.edu , liuqing.yu@u.nus.edu
MPP Core Course
Pre-requisites: LKYSPP Economics Placement Test AND/OR Economics Bootcamp
Course Description:
This is an intermediate microeconomics core class which assumes that students already
have exposure to introductory microeconomics and equips them with a more advanced
treatment of microeconomics tools and applications. The core course develops a stronger
foundation for students to then take elective courses such as health, education, labor, game
theory, behavioral, market design, development, trade, and environmental economics classes.
The class will focus on developing and introducing advanced tools (e.g., introduction to game
theory, informational asymmetry and principal-agent problems, and introduction to auctions)
as well as further developing tools from microeconomics to study welfare analysis and policy
analysis across a wide range of applications (e.g., efficiency wages in labor markets, the second-
best theory, rent seeking and corruption, regulation of market power and externalities, and
natural monopolies). The focus will be on the tools and applications most prevalent in public
policy.
Grading:
- 10% Participation & Attendance
- 60% Assignments (4 assignments throughout the course)
- 30% Final Test
Course Outline:
Week #1: Economic Surplus and Measuring Benefits to Consumers
- Indifference curves, compensating and equivalent variation, WTP and WTA
Week #2: Externalities and The Coase Theorem
- Welfare analysis of externalities and related policies, applications of the Coase theorem
Week #3: Market Power
- Market structures, natural monopolies, horizontal and vertical mergers, market power
and policy design
Week #4: The Second-best Theory
- The general theory of second best, policy instruments and related welfare analysis,
second-best institutions
Week #5: Rent Seeking
- Welfare costs of rent seeking, causes of corruption and efficiency outcomes
Week #6: Efficiency Wage
- Types of efficiency wage theories and policy implications for the labor market
Week #7: Rational vs. Behavioral Decision-making
- Rational & Behavioral Decision-making with & without Uncertainty
Week #8: Introduction to Game Theoretic Thinking
- Simultaneous Games: Dominant vs. Dominated Strategies, Nash Equilibrium
- Sequential Games: Backwards Induction, Non-credible Threats, Subgame Perfect
Equilibrium
Week #9: Information Asymmetry & Market Failures
- Principal-Agent model, Moral Hazard, Adverse Selection
Week #10: Strategic Communication of Information
- Delegation, Cheap Talk, Expertise, Signaling, Screening
Week #11: Introduction to Auctions
- First vs. Second Price Auctions, Procurement, Private vs. Common Value Auctions
Week #12: Regulating Market Power and Markets for Regulation
- Regulation of Anti-trust, Collusive Behavior
- Cap and Trade vs. Taxation
Week #13: Final Test
Additional Resources:
Given the pre-requisites, we will assume familiarity with basic, introductory microeconomics:
- Principles of Microeconomics by N. Gregory Mankiw.
