Economics 415: Market Design
Professor Peter Cramton
Tuesday and Thursday, 11 am to 12:15 pm, Tydings 0111, Spring 2006
Economists increasingly are asked to design markets in restructured industries to promote desirable outcomes. This course studies the new field of market design. The ideas from game theory and microeconomics are applied to the design of effective market rules. Examples include electricity markets, spectrum auctions, environmental auctions, and auctions of takeoff and landing slots at congested airports. The emphasis is on both the design of high-stake auction markets and bidding behavior in these markets.
Prerequisite: A vivid imagination and a tolerance for abstraction are essential prerequisites for this course. In addition, Economics 414 (Game Theory) or consent of the instructor is required of all students. If you struggled in Economics 414 (C or worse), then this course is not for you.
Course Objectives
- To understand the importance of competitive and cooperative factors in a variety of decision problems.
- To learn how to structure and analyze these problems from a quantitative perspective.
Course Logistics
We meet twice a week for one hour and fifteen minutes. There is a written project, a presentation, a midterm examination, a problem set, and a few web exercises. I expect you to come to class prepared to respond intelligently to questions about the assignment. Your final grade is determined as follows:
- auction rule critique: 15% (due Tuesday, Mar 14)
- project proposal: 5% (due Thursday, Mar 16)
- problem and web sets: 15% (due Tuesday, Apr 18)
- midterm exam: 30% (Tuesday, Apr 25)
- project: 35% (paper due Tuesday, May 2;
presentations begin Thursday, Apr 27)The required textbook for this course is Combinatorial Auctions, MIT Press, 2006. There are also readings on the class web site. The syllabus also includes a collection of gaming exercises and topics. Many of the gaming exercises are used in class to illustrate important concepts. The set of topics are a source of ideas for the written project.
Additional References
Other references that you might wish to consult are:
Dixit and Nalebuff, Thinking Strategically, W.W. Norton (1991). [A popular book on strategy.]
Fudenberg and Tirole, Game Theory, MIT Press (1991). [A comprehensive graduate text.]
Gibbons, Game Theory for Applied Economists, Princeton University Press (1992). [A modern treatment emphasizing applications for first-year graduate students.]
Klemperer, Auctions: Theory and Practice, Princeton University Press (2004). [Excellent practical book on auctions and market design.]
Krishna, Auction Theory, Academic Press (2002). [Excellent text on auction theory.]
McMillan, Games, Strategies, and Managers, Oxford University Press (1992). [Excellent examples and motivation for the ideas in this course.]
Milgrom, Putting Auction Theory to Work, Cambridge University Press, March 2004. [Outstanding book on auctions and market design.]
Milgrom and Roberts, Economics, Organization, and Management, Prentice Hall (1992). [An excellent text on organizational and incentive issues.]
Osborne and Rubinstein, A Course in Game Theory, MIT Press (1994). [A graduate text focusing on games with complete information.]
Schelling, The Strategy of Conflict, Harvard University Press (1960). [Discussion of some of the important issues in bargaining and other situations of conflict.]
Office Hours
My office hours are Tuesday, 9 to 11 am. My office is 4101A Tydings Hall. I may be reached by phone at 301.405.6987 or by email at
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