Aditya Goenka and Saqib Jafarey
Spring, 1995/96
Department of Economics (Essex University)

Course Description
This course is a seminar course in economic theory, both microeconomics and macroeconomics. The topics covered will be divided between the two though for several of these a distinction is not possible. The course presumes that the students have taken a semester of microeconomics and macroeconomics.

Course Objectives
The objective is to expose the students to models used in modern economic theory by having them work through papers and present them in class. The topics in the course cover some recent developments in economic theory which emphasize how the standard theory can be extended to understand 'real world' phenomena.

Course Assessment
For the purposes of organization, the students taking the course will be divided into 12 groups. Each of the groups will have to present one of the topics. The presentation will constitute 55% of the mark. Each student in a group will get the same mark for this component. 5% will be for class participation. The remaining 40% will be based on the final exam.


1. Incomplete asset markets

Arrow, K. (1964) "The role of securities in the optimal allocation of risk bearing," Review of Economic Studies 31, pp. 91-96.
Hart, O. (1975) "On the optimality of equilibrium when the market structure is incomplete," Journal of Economic Theory 11, pp. 418-443.

2. Rational Expectations Equilibrium

Blume, L,. and J. Jordan (1986), "An introduction to expectations equilibrium," in H. Sonnenschein (Ed.) Models of Economic Dynamics, Springer-Verlag.
Grossman. S. and J.E.. Stiglitz (1980) "On the impossibility of informationally efficient markets," American Economic Review 70, pp. 393-408.

3. Economic Dynamics: The overlapping generations model

Gale, D. (1973), "Pure exchange equilibrium of dynamic economic models," Journal of Economic Theory 6, pp. 12-36.
Shell, K. (1971), "Notes on the economics of infinity," Journal of Political Economy 79, pp. 467-482.

4. Bribery and Corruption

Basu, K., S. Bhattacharya, and A. Mishra (1992), "Notes on bribery and the control of corruption," Journal of Public Economics 48, pp. 349-359.
Mookherjee, D. and I.P.L. Png (1995), "Corruptible law enforcers: How should they be compensated," Economic Journal 105, pp. 145-159.

5. Capital Structure and Asymmetric Information

Miller, M.H. (1988), "The Modigliani-Miller propositions after thirty years," Journal of Economic Perspectives 2, pp. 99-120.
Ross, S. (1977), "The determination of financial structure: The incentive signalling approach," Bell Journal of Economics 8, pp. 23-40.

6. Incentives and Implementation

Postlewaite, A. (1985) "Implementation via Nash equilibria in economic environments," in L. Hurwicz, D. Schmeidler, and H. Sonnenschein (Eds.) Social goals and social organization, Cambridge University Press.
Samuelson, P. A. (1954) "The pure theory of public expenditure," Review of Economics and Statistics 36, pp. 387-389.

7. Credit Rationing

Stiglitz, J.E. and A. Weiss, (1981) "Credit rationing in markets with imperfect information," American Economic Review 71, pp. 393-410.
Williamson, S.D. (1986) "Costly monitoring, financial intermediation, and equilibrium credit rationing," Journal of Monetary Economics 18, pp. 159-l80.

8. Efficiency Wages

Shapiro, C and J.E. Stiglitz (1984) "Equilibrium unemployment as a worker discipline device," American Economic Review 74, pp. 433-444.

9. Trade Unions

Lindbeck, A. and D. Snower (1987), "Efficiency wages versus insiders and outsiders" European Economic Review , 31, pp. 407-416.
Layard, R. and C. Bean (1990) "Why does unemployment persist?" in Honkapohja (ed.) The State of Macroeconomics, Blackwell.

10. Bank Runs

Diamond, D. and P. Dybvig (1983) "Bank runs, deposit insurance and liquidity," Journal of Political Economy 91, pp. 401-419.

11. The Role of Money

Kiyotaki, N. and Wright, R. (1993) "A search theoretic approach to monetary economics," American Economic Review 83, pp. 63-77.
Ostroy, J. and R. Starr (1990) "The transactions role of money," in B. M. Friedman and F. H. Hahn The Handbook of Monetary Economics, Volume 1, North-Holland.

12. Growth Economics

Sala-i-Martin, X. (1990) "Five prototype models of economic growth," NBER Working Paper Series 3564.
Bencivenga, V.R. and B. Smith (1991) "Financial Intermediation and Economic Growth," Review of Economic Studies 58, pp. 195-209.

CRC-Curriculum Resource Center
CEU Budapest, Hungary
Modified: May, 1996


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