Daniel l. Rubinfeld

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xvi Contents Contents xvii Summary 456 Questions for Review 457 Exercises 457 13 461 13.1 Gaming and Strategic Decisions 461 Noncooperative versus Cooperative Games 462 13.2 Dominant Strategies 464 13.3 The Nash Equilibrium Revisited 466 Maximin Strategies 468 'Mixed Strategies 470 13.4 Repeated Garnes 472 13.5 Sequential Garnes 476 The Extellsive Form of a Game 477 The Advantage of Moving First 478 13.6 Threats, Commitments, and Credibility 479 Empty Threats 480 Commitment and Credibility 480 13.7 Entry Deterrence 483 Strategic Trade Policy and International Competition 485 13.8 Bargaining Strategy 489 *13.9 Auctions 491 Auction Formats 491 Valuatioll alld Informatioll 492 Private-Value Auctions 492 Common-Value Auctions 494 Maximizing Auction Revenue 495 Summary 496 Questions for Review 497 Exercises 498 14 Marh:.ets for factor Inputs 501 14.1 Competitive Factor Markets 501 Demalldfor a Factor Input Wilen Only One Input Is Variable 502 Demand for a Factor Input lr\fllen Several Inputs Are Variable 505 The Market Demand Curve 506 The Supply of Inputs to a Firm 509 The iVlarket Supply of Inputs 511 14.2 Equilibrium in a Competitive Factor Market 514 Economic Rent 515 14.3 Factor Markets with Monopsony Power 518 Marginal alld Average Expellditure 519 The Input Purchasing Decision of the Firm 520 14.4 Factor Markets with Monopoly Power 523 Monopoly Power over the Wage Rate 523 Uniollized and Nonllllionized Workers 524 Bilateral Monopoly in the Labor Market 525 PART 4 15 Summary 529 Questions for Review 530 Exercises 530 15.1 Stocks versus Flows 534 15.2 Present Discounted Value 534 Valuing Payment Streams 535 15.3 The Value of a Bond 538 Perpetuities 538 The Effective Yield Oil a BOlld 539 15.4 The Net Present Value Criterion for Capital In\"estment Decisions 542 The Electric Motor Factory 543 Real versus Nominal Discoullt Rates 543 Negatiz1e Future Cash Flows 545 15.5 Adjustments for Risk 545 Dh1ersifiable versus Nondiversifiable Risk 546 The Capital Asset Pricing Model 547 15.6 Investment Decisions bv Consumers 549 *15.7 Intertemporal Production Decisions-Depletable Resources 551 The Production Decisioll of all Individual Resource Producer 552 The Behavior of Market Price 553 User Cost 553 Resource Productioll by a Monopolist 554 15.8 How Are Interest Rates Determined 555 A Variety of Interest Rates 557 Summary 558 Questions for Review 558 Exercises 559 Information, Market Failure, and the Role of Government 561 16 General Equilibrium and Economic Efficiency 563 16.1 General Equilibrium Analysis 563 Two Interdependent Markets-Moping to General Equilibrium 564 The Attainment of General Equilibrium 565 16.2 Efficiency in Exchange 567 The Adz1alltages of Trade 568 TIle Edgeworth Box Diagram 569 Efficient Allocations 570 The Contract Curve 571 Consumer Equilibrium in a Competitive Market 572 The Ecollomic Efficiellcy of Competith1e Markets 574 16.3 Equity and Efficiency 575 The Utility Possibilities Frolltier 575 Equity and Pelfect Competitioll 577
- Contents Contents 17 18 16.4 Efficiencv in Production 578 Production in the Edgeworth Box 578 Input ~fficieilClI 579 Producer Equilibrium in a Competitil'e InpIlt IvIarket 580 The Productioll Possibilities Frolltier 581 Output EjJidellcy 583 Efficiency in Output lvIarkcts 584 16.5 The Gains from Free Trade 585 ComparatiI'e AdI'alltage 585 All Expanded Production Possibilities FrOlltier 587 16.6 An Owrview-The Efficiency of Competitiw Markets 590 16.7 Wlw Markets Fail 591 lvIarkct Power 592 Incomplete Informatioll 592 Externalities 592 Pl!blic Goods 593 Summary 593 Questions for Review 594 Exercises 594 17.1 Quality Uncertainty and the Market for lemons 596 The lvlarket for Used Cars 596 Impliclltiolls ~f Asymmetric f;~formlltioll 598 The Importllllce ~r Reputlltioll Ilnd Stlllldllrdi:lltion 599 17.2 Market Signaling 601 A Simple Ivlodel of Job Mllrket Signlliing 602 GUllrantecs and Wllfmnties 604 17.3 Moral Hazard 606 17.4 The Principal-Agent Problem 609 The Principal-AgCllt Problem in PriI'llte Enterprises 610 The Principlll-Agent Problem in Public Enterprises 610 IncCIltiues in the Principal-Agcnt Framcwork 612 *17.5 Managerial Incentives in an Integrated Firm 613 AS1flllllletric lI~t(ml1lltion Ilnd Incentivc Design in the Intcgmtcd Firm 614 Applicatiolls 616 17.6 Asymmetric Information in labor Markets: Efficiency Wage Theory 616 Summary 619 Questions for Review 619 Exercises 619 18.1 Externalities 621 Neglltil'c Extcl'Illllities and In~fficicllcy 622 PositiI,c Extcl'lllliities Ilnd IIl~fficiellcy 623 18.2 Ways of Correcting Market Failure 625 All EmissiOlls Stllndard 626 An EmissiOlls Fee 626 APPENDIX Stllndllrds I'crsus Fees 627 Trallsfemble Emissiolls Permits 630 Recyclillg 634 18.3 Externalities and Property Rights 638 Property Rights 638 Bargllilling and Ecollomic Efflciellcy 638 Costly Bllrgllining-The Role of Strategic Bchauior 640 A Leglll Solution-Suing for Dllmllges 640 18.4 Common Property Resources 642 18.5 Public Goods 644 E_fficiency Illld Public Goods 646 Public Goods Ilnd Mllrket Fllilure 647 18.6 Private Preferences for Public Goods 649 Summary 651 Questions for Review 651 Exercises 652 The Basics of Regression 655 An. Example 655 Estimation 656 Statistical Tests 657 Goodness of Fit 659 Economic Forecasting 660 Glossary 663 Answers to Selected Exercises 675 Index 687 Example 1.1 Markets for Prescription Drugs 10 Example 1.2 TIle Price of Eggs and the Price of a College Education 12 Example 1.3 The Minimum Wage 13 Example 2.1 The Price of Eggs and the Price of a College Education Revisited 26 Example 2.2 Wage Inequality in the United States 27 Example 2.3 The Long-RIm Behavior of Nahll'al Resource Prices 28 Example 2.4 The Market for Wheat 33 Example 2.5 The Demand for Gasoline and Automobiles 39 Example 2.6 The Weather in Brazil and the Price of Coffee in Ne\v York 41 Example 2.7 Declining Demand and the Behavior of Copper Prices 47 Example 2.8 Upheaval in the World Oil Market 49 Example 2.9 Price Controls and Natural Gas Shortages 54 Example 3.1 Designing New Automobiles (I) 71 Example 3.2 Designing New Automobiles (II) 81 Example 3.3 Decision Making and Public Policy 82 Example 3.4 A College Trust Fund 85 '. :
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Daniel l. Rubinfeld

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