KAFP 3350 - Public Economics - Level 2

Why does the state need to intervene in markets? The course starts by reviewing the view of the world under perfect competition, where the invisible hand is at work. In this world, there is no room for intervention. We will then explore various causes of departures from this view, what are called market failures. The first category of failures finds its root in concentrated markets, where firms have excessive power. To study such environments we will introduce the tools of game theory. The second category is linked to informational problems. We will examine problems of adverse selection and moral hazard, that were of high relevance for instance in the recent financial crisis. The third category is linked to the absence of markets (such as the absence, until recently of markets for pollution). This gives rise to what is known as externalities. We will study solutions in these kind of instances. We will study public policies aimed at finding solutions to these essential problems: antitrust policy, tax policy, labor laws and discuss applications to the recent COVID crisis What this class is not and will not discuss: this is a class in microeconomics. We will not be discussing monetary policy, employment and we will have only a small part on fiscal policy.

Emeric HENRY,Aymeric ORTMANS,Antonela MIHO

Cours magistral et conférences

English

In between sessions, the students will have required readings and some formal exercises to prepare for the TD sessions.

There are no pre-requisites although elementary calculus as well as elementary data analysis will be helpful. Keep in mind that there will be a large heterogeneity in levels in the class.

Autumn 2022-2023

The course will be evaluated on the following basis: • A group project (50%), performed in groups of 3-4 members, necessarily part of the same TD session. The project will analyze a particular public policy mobilizing concepts seen in class. The project will both be returned as a formal report and will be presented during the last TD sessions. • Final in class exam (50%). The first part of the exam will be a quantitative exercise, in the spirit of those done in the TD. The second part will be a small case study of a public policy, taken from your personal experiences. • Participation in class and in TD sessions will be rewarded with bonus points

The course will be strongly grounded in practical examples, including case studies, newspaper articles and research articles.