Excel Homework Due December 4 at 11 PM

This is the last Excel Homework. 

This homework is on extensions of the basic Shapiro and Stiglitz model, with a particular focus on making the monitoring intensity a choice variable. 

You should watch the video presentation of the basic model first. This is a full lecture on the math of the model. It takes about a half hour. (If you want the PowerPoint file, a link to it is in the description of the video.) 
 
The actual Shapiro and Stiglitz paper: http://www.jstor.org/stable/1804018 
The video that derives the equations from the paper: http://youtu.be/upUrdaLNIss 
xlsx file: https://uofi.box.com/s/cyuy1v6kfs8dfl3n43kopbp801n79sbo

Excel Homework Due Nov. 13 at 11 PM

Please watch this video first. It gives the algebra of the principal-agent model and will make you comfortable with the notation and the basic ideas.  The PowerPoint on which the video is based can be downloaded from the description of the video.

Then do the Excel homework, which does the same analysis but this time with a graphical approach.

Excel Homework Due Nov. 6 at 11 PM

The homework is on bargaining. Note that M&R have a discussion of bargaining in Chapter 5. You should read that. The model they go through has both the buyer and seller having two types. In the Excel homework, the model has a continuum of types on each side of the bargain. In that sense it is harder but also more elegant. And, I believe, it should give you a better understanding about the relationship between the private information and the inefficiency created.

There is a fiction in the model that helps to understand what is going on. The fiction is that there is a third party - an arbitrator - who provides rules for how the bargaining will happen, when trade will occur, and at what price. The fiction is necessary because the model is static. Real world negotiations happen over time and to model that correctly one needs a dynamic model. There are such models, but they are well beyond the scope of our class. So we will keep the modeling relatively simple and wave our hands about what happens in real world bargaining.

There is a rather extensive discussion in this homework before you log in. I encourage you to read that carefully and not gloss over it. It is about how to bargain well and what happens in real-world procurement, which entails a good deal of such bargaining. There are practical lessons here that you can carry over to your work life, even if you don't engage in procurement. To encourage you to read that part, there will be a concept quiz due the morning of Nov. 7, before class, that focuses on the procurement section.

Excel Homework Due Wednesday October 30 At 11 PM

This homework takes the insurance model we did in the last class and applies it to Akerlof's Market for Lemons, which is a very well known approach to Adverse Selection (hidden information).  Depending on the underlying distribution over types, the competitive market may not work very well in this instance - the bad risks drive out the good risks. 

The economics here is more sophisticated, because there is a possibility of a pooling equilibrium or a separating equilibrium and students may not understand what determines which will occur.  We will discuss this in class, after the homework is due. 

If you have questions about doing the homework itself, please post them as comments on this post.

I want to note two bits of reality that aren't in the model in the homework. 

(a) In the homework it is assumed that the insurance company faces no costs in issuing a policy nor costs in administering the coverage when loss occurs.  Under this assumption, a competitive market will produce equilibrium policies where the fixed load, F, is 0.   More realistically, you should consider that F is positive, to cover these type of costs.  In that case the good risk type really might buy no insurance whatsoever.  Our model doesn't predict that but instead predicts that the good risks may get only a little coverage.

(b) In the homework it is assumed that regardless of type the insured can afford to pay the premium.  (We would say the insured is not liquidity constrained.)  But in reality, fair insurance premiums for bad risks may be too high for people to afford.  So rather than buy full coverage, as in the case of a separating equilibrium in our model, the people will go entirely without purchasing insurance. 

Of course, you can model both of these considerations, but then the model itself becomes much harder.  So the homework is suggestive of what happens, without giving the full picture.

Please Look At The Items Here Before You Start the Excel Homework Due Oct 23 at 11 PM

Each of these should be reviewed before doing the next Excel homework, which assumes that such a review has been performed.  They should be familiar already, based on what you've been exposed to in Econ 202 and 203. There may be some new stuff on risk preference. I'd be curious to learn what is old hat and what is new for you. Note that there is a bit of overlap between each of these. Nonetheless, I strongly encourage you to review them all, so you have a firm understanding of the fundamentals. The second one emphasizes an algebraic approach. The third, a graphical approach. You should be familiar with both.

Notes on the Math and Philosophy of Probability  (This is a pdf file.)  There is a slight error in this - a line I attributed to Keynes actually comes from Mark Twain.  Otherwise, it is pretty basic stuff.

Increasing Risk and Risk Aversion (This is a video in YouTube.  You can find a link to the PowerPoint file on which it is based in the description of the video.)

Expected Utility and Jensen's Inequality (This a video in YouTube.  You can find a link to the PowerPoint file on which it is based in the description of the video.)

You should be able to get through all of this in under 45 minutes.  Of course, the less familiar it is to you, the longer it will take to get a good understanding.

The last bit on expected utility is based on the book by John von Neumann and Oskar Morgenstern called Theory of Games.   Maximizing expected utility is what economists think of when they refer to economic rationality.  The Behavioral Economists have shown that most people don't behave according to this theory.  Even professional economists don't always behave as the theory says, but they are more likely to be rational this way than the rest of the population.

Excel Homework Due Wednesday Oct. 2, 2019 at 11 PM

This homework is about coordination failure and coordination mechanisms. The last two worksheets coincide with material from M&R. Chapter 2 pages 43 - end of chapter on the medical intern matching program. And all of Chapter 3. Transfer pricing starts on page 79.

You must use cell references on the worksheet about Transfer Pricing.  The cells may very well be locked.  You'll have to figure out which is the right cell.  (You can test this by type =CellReference in an unlocked cell and seeing whether the you cell you want to reference is highlighted.)

If you have questions about this homework, please write them as comments to this post.

A short video in preparation for the Excel homework due this Wednesday at 11 PM.

This is just me reading a power point with text.  I did try to make it so you would focus on one line at a time.  I'm curious to know if this helps you and is the type of preparation you wanted.  In the next homework, there will be calculations like in the previous homework.  So that may be a better test on the type of preparation that works for you.

Excel Homework Due September 18 at 11 PM.

This is the homework on Efficiency Concepts and why the partial equilibrium concept and the general equilibrium concept don't line up exactly, as well as the special case where they do. It's important to have a firm footing here because economic efficiency is our starting point in looking at organizations the M&R way.  Then we can talk about various reasons for departures from efficiency.

If you have a question about this homework, please post it as a comment to this post.

Reminder - Excel Homework Due Sept 11 at 11 PM

You can get the homework here.  The file must be downloaded.  The is is the first homework - a tutorial for doing the other homework. 

One student who has done it already reported difficulty with the pulldown menu for choosing your alias.  The student didn't say but I'm guessing the student was on a Mac.  (My sense of things is that having Office function well is a big reason to have a PC, so I believe Microsoft deliberately makes Excel clunky for the Mac.)  Nevertheless, I just tried it and it worked okay.

You do need a current version of Excel.  You can get the entire Office suite here at no cost to you.  Alternatively, there is a computer lab in the basement of Wohlers.  You can do the homework there, though I have no idea how busy the lab is.

If you have questions about the homework please post them as a comment on this post.

Excel Homework

Each homework will have its own post with a link to the Excel file, perhaps some commentary on the purpose of the homework and the due date.  Questions about the homework can be made as comments to the post.