Mikroøkonomi

(6) MICROECONOMICS

Questions about the topics within the subject area of Microeconomics should be directed to: Lone Grønbæk, Department of Business and Economics, e-mail: lg@sam.sdu.dk

Some topics are available only in English, some in both Danish and English.

6.1 Behavioural and Experimental Economics
Understanding individuals’ behaviour and knowledge of their preferences are highly relevant in many contexts – e.g. in implementing public interventions or in companies’ sales decisions. Empirical studies and experiments in individuals’ behaviour often show disagreements between the actual behaviour of an individual and what is expected, given the assumptions from neoclassical economic theory about the rational human, homo-economicus. Within the last few years the interest of explaining these irrational behaviour patterns by psychological theories has increased – hence the name behavioural economics. By taking results from economic experiments and measures of willingness-to-pay as a starting point, it is attempted to explain individual behaviour by psychological theories of human behaviour and it is subsequently introduced in the economical (and theoretical) instruments.

Within this subject the following topics are relevant:

6.1.a  Heuristics and bias in hypothetical measures of willingness-to-pay
It will be possible to receive a data set from existing questionnaire surveys for the students own analyses if the student is interested.

6.1.b Regulating individual behavior
Why and does it work? Focus could be on lifestyle and behaviour that affect our health.

6.1.c Experimental economics
Taking previous studies as starting point or by carrying out your own experiment, individual behaviour in a given economic context is investigated.

Literature:
Wilkonson, N. and Klaes, M.: An Introduction to Behavioral Economics. Palgrave MacMillan.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses.

6.2 Labour Market Economics/-policies
The conditions on the labour market are extremely important both for the individual and the society as a whole. On a micro level the individual participation in or exclusion from the labour market can be seen as a function of both the individuals’ and the companies’ behaviour taking the restrictions of the market into account. It applies both for the market form and the economic and political instruments. On a macro level the functions of the labour market are important for the unemployment rate and hence for the production resources that are available in the economy.

Within this subject the following topics are relevant:

6.2.a Labour standards/ Employment protection legislation
Literature:
See e.g. Destefanis, S., & Mastromatteo, G. (2015). The OECD beveridge curve: Technological progress, globalisation and institutional factors. Eurasian Business Review, 5(1), 151-172. Skak, M. (2005). Economic Integration, International Capital Movements, and Labour Standards. LABOUR: Review Of Labour Economics & Industrial Relations, 19(2), 273-301.

6.2.b Does minimum wages reduce employment?
Literature:
See e.g. Ropponen, O. (2011). Reconciling the evidence of card and krueger (1994) and neumark and wascher (2000). Journal of Applied Econometrics, 26(6), 1051-1057. Clain, S. H. (2015). Variation in job creation and destruction across the states through boom and bust: Could minimum wage matter? Eastern Economic Journal, 41(2), 183-199.

6.2.c Optimal choice of education
Literature:
See e.g. Huntington-Klein, N. (2015). Subjective and projected returns to education. Journal of Economic Behavior and Organization, 117, 10-25. Wendelspiess, C. J. (2015). Intergenerational transmission of education: The relative importance of transmission channels. Latin American Economic Review, 24(1), 1-44.

6.2.d Active labour market policy
Literature:
See e.g. Andersen, T. M. (2012). A flexicurity labour market in the great recession: The case of Denmark. De Economist, 160(2), 117-140. Berry, C. (2014). Quantity over quality: A political economy of 'active labour market policy' in the UK. Policy Studies, 35(6), 592-610.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses.

6.3 Housing and Urban Economics
Housing economics is based on the households’ choice of optimal housing, conditional on the restrictions that the housing market, the financial markets and the economic policy define.

Within some areas open competition exists but most housing types involve regulations and restrictions. This is also true for the financing of housing. Urban economics deal with the structure and development of the cities and rural areas as a function of the optimal choice of location for companies and dwellings. Within this area regulation can affect the functions of the market as well.

Examples of relevant topics within this subject:

6.3.a Housing and welfare since World War II
Literature:
See e.g. Strange, W. C. (2011). Review of: Triumph of the city: How our greatest invention makes us richer, smarter, greener, healthier, and happier. Journal of Economic Literature, 49(4), 1310-1313. Glaeser, E. L., Gottlieb, J. D., & Tobio, K. (2012). Housing booms and city centers. American Economic Review, 102(3), 127- 133.

6.3.b The relation between the housing sector and the cyclical movements
Literature:
See e.g. Leamer, E. E. (2015). Housing really is the business cycle: What survives the lessons of 2008-09? Journal of Money, Credit, and Banking, 47, 43-50. Christelis, D., Georgarakos, D., & Jappelli, T. (2015). Wealth shocks, unemployment shocks and consumption in the wake of the great recession. Journal of Monetary Economics, 72, 21-41.

6.3.c Rent control and distribution
Literature:
See e.g. Glaeser, E. L., & Luttmer, E. F. P. (2003). The misallocation of housing under rent control. American Economic Review, 93(4), 1027-1046. Skak, M., & Bloze, G. (2013). Rent control and misallocation. Urban Studies, 50(10), 1988-2005.

6.3.d Choice of optimal housing type (and distribution of housing)
Literature:
See. e.g. Andersen, H. Skifter (2011). Motives for Tenure Choice during the Life Cycle: The Importance of Non-Economic Factors and Other Housing Preferences. Housing, Theory and Society 28 (2) 183-207.Hansen, J.

D., & Skak, M. (2008). Adaptation investments and homeownership. Journal of Housing Economics, 17(1), 102-

115. Brown, W. M., & Lafrance, A. (2013). Trends in homeownership by age and household income: Factors associated with the decision to own, 1981 to 2006 Statistics Canada, Analytical Studies Branch, Economic Analysis (EA) Research Paper Series.

6.3.e Financial restrictions and housing types (and distribution of housing)
Literature:
See e.g. Aarland, K., & Nordvik, V. (2009). On the path to homeownership: Money, family composition and low-income households. Housing Studies, 24(1), 81-101. Ferreira, F., Gyourko, J., & Tracy, J. (2010). Housing busts and household mobility. Journal of Urban Economics, 68(1): 34–4.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses.

6.4 Pharmaceutical Economics
Pharmaceuticals play an important role in the treatment that the health care system offers and they impact the productivity of the health care system. Furthermore, a lot of people are dependent on effective pharmaceuticals to control chronic conditions. Hence, the pharmaceutical industry is of vital importance for the society. Today research, development and production of pharmaceuticals are handled by large companies that supply many countries. Moreover many pharmaceuticals are protected by patents which give the producers of these pharmaceuticals monopoly for several years. On the other hand patents and the prospect of having a monopoly on a pharmaceutical are important factors of giving incentives to develop new pharmaceuticals. These and a number of other factors impact the pharmaceutical market and hence the prices of pharmaceuticals. It also affects both the consumers’ (i.e. the patients’) costs and the public expenditures on pharmaceuticals.

Examples of relevant projects within this subject include:

  1. Reimbursement of medicines
  2. Competition in the market for off-patent pharmaceuticals
  3. Parallel import

Literature:
Pedersen K.M. Pricing and reimbursement of drugs in Denmark. European Journal of Health Economics 2003; 4(1): 60-65.

Hostenkamp G. The market for hospital pharmaceuticals in Denmark. Nordic Journal of Health Economics 2012; 1(1): 101-116.

Morton FS & Kyle M, Markets for Pharmaceutical Products. In Pauly, McGuire & Barros, Handbook of Health Economics, Volume 2, 2012.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses

6.5 Economic Valuation of Health and Health Care
Economic evaluation is an important element in a rational decision-making process about prioritizing resources. According to economic theory the individual utility can be measured as willingness-to-pay which is reflected in the price of the good. In case of market failures the price of the good does not reflect the true value of the good anymore and in such situations (and in situations where a market does not exist) alternative methods must be used to elicit the preferences. These methods are traditionally split op into two categories dependent on whether the preferences are elicited directly or indirectly. This includes the use of hypothetical valuation methods including discrete choice experiment and contingent valuation as well as preference based measures of health effects such as quality adjusted life years (QALYs). When using these methods the preferences are elicited hypothetically by the use of questionnaire surveys. Possibly in cooperation with a company/public institution. Data sources are potentially also available at Department of Business and Economics.

Examples of relevant projects within this subject include:

  1. Conduction of self-elected valuation study
  2. Economic evaluation of a health care intervention
  3. Willingness-to-pay for a QALY: Methodological and theoretical issues
  4. Methodological challenges to stated preference valuation

Literature:
Bateman, I. J., Carson, R. T., Day, B., Hanemann, M., Hanley, N., Hett, T., ... & Pearce, D. W. (2002). Economic valuation with stated preference techniques: a manual. Economic valuation with stated preference techniques: a manual.

Drummond, M. F., Sculpher, M. J., Claxton, K., Stoddart, G. L., & Torrance, G. W. (2015). Methods for the economic evaluation of health care programmes. Oxford university press.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses.

6.6 Behavioral Health Economic
People often make decisions in health care that are not in their best interest, ranging from failing to promote healthy living to engaging in extremely harmful behaviors. Traditional economic theory provides a limited tool kit for improving behavior because it assumes that people make decisions in a rational time consistent way, are purely self-interested, have mental capacity to deal with huge amounts of information and choice, and are not open to manipulation. Merging economics with psychology, behavioral economics acknowledges that people often do not act rationally in the economic sense. It therefore offers a potentially richer set of tools than provided by traditional economic theory to understand and influence behaviors.

Examples of relevant projects within this subject include:

  1. The role of time-inconsistency to individual health behaviors
  2. Understanding donation behaviour
  3. The use of biases and heuristics in health decision making
  4. Nudging people into making better health decisions
  5. Conduction of self-elected experimental study

Literature:
Wilkinson, N., & Klaes, M. (2012). An introduction to behavioral economics. Palgrave Macmillan.

Loewenstein, G., Asch, D. A., Friedman, J. Y., Melichar, L. A., & Volpp, K. G. (2012). Can behavioural economics make us healthier. BMJ, 344(7863), 23-25.

Rice, T. (2013). The behavioral economics of health and health care. Annual review of public health, 34, 431-447.

Thaler, R. S., & Sunstein, C. (2003). C.(2008) Nudge: Improving Decisions about Health, Wealth and Happiness.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses.

6.7 Topics in Health Economics
Health care makes up a significant part of the expenditures and plays a central role in the Welfare State. Technological development, demographic changes and expectations of the population are all part of the pressure on the health care system. Health economics applies economic theory and methods to analyse problems that originate in these circumstances. In this way, health economics can illustrate the consequences of alternative solutions to support decision makers on national, regional and local levels.

Examples of relevant topics within this subject:

  1. Organization of general practitioners in Denmark
  2. Public health care or private health insurance
  3. Control of incentives in public healthcare
  4. User fees and access to health care services
  5. Prioritisation in health care
  6. Health econometrics

Literature:
Morris S, Devlin N, Parkin. Economic Analysis in Health Care. Wiley.

Jones, A. M., Rice, N., d'Uva, T. B., & Balia, S. (2013). Applied health economics. Routledge.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses.

6.8 Sports Economics
Writing a bachelor seminar in sports economics gives an opportunity to apply economic theory and methods on problems within the professional sports industry. Sports economics contributes with a nearly endless number of examples from any area of the microeconomic theory and yields possibility to look into problems such as: Are leagues and sports clubs monopolies? Are sports clubs profit maximizing companies? What factors determine the demand for sport? How is the competitive balance computed and is there a difference between leagues? How is the market for sports financed? What costs and benefits does a city have from sports clubs? Does the multiplier effect exist and can it be proved? How are preferences for sports facilities or sport events uncovered? How is the value of sports facilities or –events determined? Does the wage of sports athletes correspond to the marginal revenue product of labor? Which failures exist on the labour market within the sports industry? Is it possible to prove discrimination (race/sex/nationality) within the sports industry? Which economic methods can be applied to discover match fixing and corruption? How can economic theory explain doping? And you can find many more questions on your own…

Example of a relevant topic:
In sport leagues many factors are important to keep the interest in the league. A central aspect is competitive balance between the teams. If one or more teams are supreme compared to the other teams the excitement in the league is reduced – and the audience finds the league less interesting. In the seminar, it is possible to compare the competitive balance in several leagues in e.g. Europe to investigate which leagues contain the higher element of excitement compared to others. This can for example be done by considering a concentration index for the performance of the sports clubs through the last 10 years.

Litterature:
Buraimo, B. & Simmons, R. 2008. Do Sports fans really value uncertainty of outcome? Evidence from the English Premier League. International Journal of Sport Finance, 3(3), 146-155

Zimbalist, A. 2002. Competitive balance in Sports Leagues: An introduction. Journal of Sports Economics, 3(2), 111-121

Fort, R. & Maxcy, J. 2003. Comment. Competitive balance in Sports Leagues: An introduction. Journal of Sports Economics, 4(2), 154-160

Andreff, W. & Raballand, G. 2011. Is European footballs future to become a boring game? Chapter 8 in Contemporary

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses.

6.9 Trade, Market Structure and Competition Legislation
Within this field of study the idea is to describe and analyze the market structure in a trade based on economic theory and from this e.g. evaluate the conditions for competition in the  line of business or estimate the development of the trade in the coming years. It is also possible to include further special economic mechanisms in the trade and analyze the impact on the competition. Another starting point is the Danish and/or the European competition legislation with a view to evaluate whether the legislation (de facto as well) is respected. Examples: An analysis of the Danish brewery market where it is common knowledge that we have many small players and few larger ones as well as several foreign combatants. How will this market develop in the future? Another example is air transport. Are discount companies going to increase their market shares even more? Do loyalty programs undermine the competition in the market etc.? A more concrete example is to analyze a specific company and its market: Is it possible for B&O to survive as a luxury brand in a competitive global market? Is it possible for Mærsk- Møllers shipping company to continue to be profitable? Does Dong Energy have too much market power in the Danish energy sector? Does Danske Bank have too much power in the banking sector etc.? There are many possibilities within this field.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses.

6.10 Energy-, Environmental or Resource Economics
Energy- and environmental economics originate theoretically in the external problem and the involved loss of welfare. It is an interdisciplinary field where the stock or the flow of a resource is taken into consideration in the economics modeling. Examples include

  1. Optimal regulation or resources/environment
  2. Enforcement issues in regulation, the principal-agent problem
  3. International agreements and externalities between countries
  4. Environmental regulation and cost-effectiveness nationally and/or globally
  5. Information asymmetric and resources and situations with adverse selection or moral hazard.

Literature:
Perman, Ma, McGilvray, Common. Natural resource and environmental economics. Pearson.

Field & Field. Environmental Economics: An Introduction. McGrawHill Education.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses

6. 11 Theoretical or Applied Game Theory and Economics of Information
For all the subjects below, the project can be written in English. Depending on the choice of supervisor, most projects can also be done in Danish.

A project taking game theory as starting point can have a relatively theoretical focus.

In the theoretical part of the topic, it is for example possible to analyze and discuss a theoretical model and its possible extension, to compare different models and their implications, or to modify or extend a model.

In the applied part of this subject one common approach is to try to understand or describe observed politics and economic behavior in a game theoretic or informational economics setting. One could for example gain knowledge of a given area or problem observed in real life and (depending on the subject) either analyze implicit contractual conditions or analyze the problem in light of the theoretical knowledge of the underlying ’game’.

Examples of potential topics within this subject:

6.11.a Implementation of auctions in practice
Why is a specific type of auction used in a given area etc.

6.11.b Contract theory (theoretical)
E.g.: How do contract theory and the involved problems regarding adverse selection and moral hazard change if the principal can draw on more than one agent?

6.11.c Contract theory (applied)
E.g.: Uncovering obvious moral hazard or adverse selection problems related to various salary types in business.

6.11.d Analysis of behavioral changes in response to specific laws

E.g.: The specific taxation in different countries concerning extraction of raw material (e.g. the North Sea oil). What problems does a high taxation create with regard to the extracting firms’ incentives to carry out research under uncertainty?

E.g.: Could the number of organ donors registered be increased by changing the law from informed consent to presumed consent?

6.11.e Matching and market design
E.g. matching schools and pupils, patients and donors, or creating a market for organ donation.

6.11.f Cost sharing
How should the cost of producing a good be divided among those who demand it?

6.11.g Solutions to Bankruptcy problems
When a firm goes bankrupt, the value of the firm has to be divided among the creditors. How should this be done?

6.11.h Airport/highway problems
Different airlines (highway users) have different needs, so how should the cost of building or maintaining a landing strip (highway) be shared between the users?

6.11.i Queueing problems
E.g.: If users to be served choose themselves (strategically) when to line up for service, how does the choice of queue discipline matter for average waiting time, how the queue evolves, etc.?

Literature:
Relevant textbooks (depending on topic):

Dixit, Skeath and Reiley: Games of Strategy. Norton.

Osborne and Rubinstein: A course in Game Theory. MIT Press. Maschler, Solan, and Zamir: Game Theory. Cambridge University Press. Journal articles related to the chosen subject.

Prerequisites: A basic knowledge within microeconomic theory is required, corresponding to the courses “Mikroøkonomi”, “Virksomhedens økonomi” or similar courses. Further knowledge of microeconomics/game theory is an advantage.

6.12 Welfare economics and social choice
All projects can be written in English. Depending on the choice of supervisor, some projects can also be written in Danish.

A project based on welfare economics can focus on issues such as welfare, inequality and poverty. The project can be theoretical or empirical. Examples of topics under this theme could be:

6.12.a How to measure inequality?
Inequality is pervasive in many countries in the world. It is therefore essential to understand how to measure it properly, so as to help reducing it efficiently. This may be difficult in particular when inequality consists of several dimensions (such as health, income, education,…) . The project would consist in reviewing and discussing the definitions of various measures of inequality. Possibly with a specific use as illustration.

6.12.b What is poverty?
Should we define poverty in absolute or relative terms? When is someone poor in Denmark? Should it be the same as for developing countries? In order to understand poverty, it is important to define a precise and ethically appealing way of measuring poverty.

The project would consist in reviewing these measures and applying them to various countries as an illustration.

6.12.c Welfare
Economists often refer to “social welfare” when they want to talk about the collective good. But, what do we mean exactly by social welfare, and how should it be defined? This question is very important as different definitions of social welfare might lead to different policies or benefit some specific groups in society. The objective is therefore to understand how to measure social welfare so that everyone is treated in a fair and transparent way.

6.12.d Voting
Social choice is about how to aggregate individual preferences into a collective decision.

Eg. How can we aggregate individual preferences over different alternatives into a social preference? What is the advantage and disadvantage of different voting procedures? What is the consequence of Arrow's impossibility theorem?

Literature:
Relevant textbooks (depending on topic):

Herve Moulin, Axioms of cooperative decision making. Cambridge University Press, 1988 Young, H. Peyton. Equity: in theory and practice. Princeton University Press, 1995.

Börgers, Christoph. Mathematics of social choice: voting, compensation, and division. AMC 10 (2009): 12. Lambert, Peter. The distribution and redistribution of income. Manchester University Press, 2001.

Journal articles related to the chosen subject.

Prerequisites: A basic knowledge within microeconomic theory, corresponding to the course “Velfærdsøkonomi og skattepolitik” or similar.

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