PH211

Michaelmas Term, 2014

List of Topics
I. Welfare Economics and Problematic Preferences
2. Welfare, Autonomy, and Behavioural Economics
3. Equality and the Right Social Welfare Function
4. The Robbins Critique and the Separateness of Persons
5. Social Choice Theory, the Two Welfare Theorems, and the Pareto Principle
6. Kaldor-Hicks Efficiency and its Critics
7. Maximize the Economic Pie and then Redistribute?
8. Fair Prices
9. Externalities and the Property Rights Question
10. Market Failures and Positive Rights

MG211.1
2014/2015
Michaelmas Term:
Introduction
Deterministic Inventory Model
Stochastic Inventory Model
Shortest Paths
Project Management
Stable Matchings
Markov Chains I
Markov Chains II
Soft OR:
What and Why Problem Structuring Methods (PSM)
Strategic Options Development and Analysis (SODA)
Soft Systems Methodology (SSM)
Strategic Choice Approach
Lent Term:
Queuing Theory I
Queuing Theory II
Dynamic Programming I
Dynamic Programming II
Decision Theory
Game Theory

EC325 Public Economics Syllabus 2014/2015

PART I - Foundations of public economics
Introduction to public economics and public policy analysis
1) Introduction: what is public economics?
Motivation of the course. The 4 questions of public economics. Overview of the course
topics. Outline of the course.
Foundations of public economics
2) Foundations of welfare and distributional analysis
Utility maximization and welfare measures. Equilibrium analysis. Economic incidence.
Fundamental theorems of welfare economics
3) Externalities
The theory of externalities. Market failure and the conditions for economic efficiency.
Types of externalities. Private bargaining solutions versus government intervention.
Alternative government policies: taxes, congestion charges, regulation, and zoning.
Climate change.
4) Public Goods
Sources of market failure and the role for government intervention: competition failure,
public goods, externalities, incomplete markets, information failures. The theory of public
goods: non-rivalness and non-excludability; efficiency conditions.
Empirical methods for public economics: treatment evaluation
5) The Evaluation Problem Part I
Potential outcome framework and the evaluation problem. Randomized experiments.
Natural experiments. Diff-in-diff models and examples.
6) The Evaluation Problem Part II
Instrumental variables: principles, examples. Regression discontinuity design: principles,
examples
Social choice and the scope of government
7) Public choice & political economy
Fundamental issues in public choice: preference revelation, aggregation of preference.
Arrows Impossibility Theorem. Voting models and the new political economy. New
contract theory and the scope of government.

PART II Public Interventions in the Education and Insurance Markets

8) Public intervention in the education market
Reasons for government intervention in education: market failure and redistribution. (ii)
The crowd-out effect of free public schools. (iii) The arguments for and against school
choice and school vouchers. (iv) Measuring the returns to education. (v) Human capital
investment versus job market signalling.
9) Social Insurance
Why do people value insurance? (ii) Why have social insurance? Asymmetric information
and adverse selection. (iii) What are the problems with social insurance? Crowd-out and
moral hazard. (iv) Applications to Unemployment Insurance and Disability Insurance.
10) Retirement Pensions
Funded versus unfunded (pay-as-you-go) state pensions. Is there a pensions crisis?
Intergenerational and intragenerational equity. Efficiency: effects on savings and
retirement decisions. Options for reform
11) Health
Reasons for government intervention in health care markets. (ii) The moral hazard cost
of subsidized health insurance and the price elasticity of health care demand. (iii)
Optimal health insurance. (iv) What is the effect of public health insurance on health
outcomes? (v) The rising health care expenditures over time.
PART III Taxation
Taxation and transfer programs
12) Tax incidence
Defining incidence. Partial equilibrium analysis of simple incidence problem and the role
of elasticities. General equilibrium analysis. New behavioural research in salience.
13) Poverty alleviation
(i) Inequality and poverty across countries. (ii) Different types of social programs. (iii) The
moral hazard costs of low-income support. (iv) Reducing moral hazard: tagging, in-kind
benefits, and ordeals. (v) Lessons from the U.S. welfare reform efforts.
14) Taxes, transfers and labour supply
The theory of tax and labour supply: income vs substitution effects, hours worked vs
labour force participation. (ii) Evidence on tax and labour supply. (iii) In-work benefit
programs: theory and evidence.

15) Taxes, transfers and migration

(i) The effect of local taxes on migration within a country. (ii) The effect of taxes on
international migration. (iii) The effect of welfare benefits on migration.
16) Incomes and behavioral responses at the top of the distribution
(i) The long-run evolution of top income shares and top marginal tax rates. (ii) The
elasticity of taxable income: concept, policy relevance, and estimates. (iii) The
highincome Laffer curve.
17) Tax inefficiencies and optimal commodity taxation
(i) Reasons for using commodity taxes. (ii) The deadweight loss from commodity taxes.
(iii) The Ramsey optimal tax problem and the Inverse Elasticity Rule. (iv) The uniformity
versus selectivity debate. (v) Extensions: equity concerns, externalities, internalities. (vi)
Cigarette taxation as a case study
18) Optimal income taxation
(i) The fundamental theorems of welfare economics and the informational constraint in
income taxation. (ii) The deadweight loss from income taxation. (iii) The optimal income
tax problem. (iv) The relationship between optimal income taxation and the Laffer curve.
(v) The optimal marginal tax rate at the top.
19) Taxation and saving
Facts about the distribution of wealth. The theory of how taxation affects savings. The
two-period Fisher life-cycle model of saving. Problems with the standard lifecycle
model. Behavioural models of saving. Optimal taxation of savings.
20) Public Finance and Development
(i) Lessons from optimal tax theory. (ii) Actual tax systems across countries and over the
course of development. (iii) Explaining the divergence between optimal and actual tax
systems in under-developed economies. (iv) Tax evasion and tax enforcement: theory
and evidence