I teach undergraduate intermediate microeconomics, a 10 week course that is the second in a two-part seqeunce at Northwestern University.  I have developed a unique approach to intermediate micro based originally on a course designed by my former colleague Kim-Sau Chung.  The goal is to study the main themes of microeconomics from an institution- and in particular market-free approach.  To illustrate what I mean, when I cover public goods, I do not start by showing the inefficiency of market provided public goods.  Instead I ask what are the possibilities and limitations of any institution for providing public goods.  By doing this I illustrate the basic difficulty without confounding it with the additional problems that come from market provision.  I do similar things with externalities, informational asymmetries, and monopoly.

All of this is done using the tools of dominant-strategy mechanism design.  This enables me to talk about basic economic problems in their purest form.  Once we see the problems posed by the environments mentioned above, we investigate efficiency  in the problem of allocating private goods with no externalities.  A cornerstone of the course is a dominant-strategy version of the Myerson-Satterthwaite theorem which shows the basic friction that any institution must overcome.  We then investigate mechanisms for efficient allocation in large economies and we see that the institutions that achieve this begin to resemble markets.

Only at this stage do markets become the primary lens through which to study microeconomics.  We look at a simple model competition among profit-maximizing auctioneers and a sketch of convergence to competitive equilibrium.  Then we finish with a brief look at general equilibrium in pure exchange economies and the welfare theorems.

There is a minimal amount of game theory, mostly just developing the tools necessary to use mechanism design in dominant strategies, but also a side trip into Nash equilibrium and mixed strategies.

In the coming weeks I will be posting here my lecture notes with a brief introduction to the themes of each.  I am distributing these notes under the Creative Commons attribution, non-commercial, share-alike license.  Briefly, you are free to use these for any non-commercial purpose but you must give credit where credit is due.  And you are free to make any changes you wish, but you must make available your modifications under the same license.

Today I am posting my notes for the first week, on welfare economics.

I begin with welfare economics because I think it is important to address at the very beginning what standard we should be using to evaluate economic institutions.  And students learn a lot from just being confronted with the formal question of what is a sensible welfare standard.  Naturally these lectures build to Arrow’s theorem, first discussing the axioms and motivating them and then stating the impossibility result.  In previous years I would present a proof of Arrow’s theorem but recently I have stopped doing that because it is time consuming and bogs the course down at an early stage.  This is one of the casualties of the quarter system.