Economic Theory and its Applications

This information is for the 2013/14 session.

Teacher responsible

Prof Leonardo Felli 32L4.02 and Dr Andrew Ellis 32L 3.15


This course is available on the BSc in Econometrics and Mathematical Economics, BSc in Economics, BSc in Mathematics and Economics, BSc in Mathematics with Economics, BSc in Philosophy and Economics, BSc in Social Policy and Economics and MSc in Econometrics and Mathematical Economics (2 Year Programme). This course is available as an outside option to students on other programmes where regulations permit and to General Course students.


Students should have completed Microeconomic Principles I (EC201) or Microeconomic Principles II (EC202) or equivalent. Fluency in calculus is essential, some knowledge of analysis, linear algebra and set theory. A highly motivated student with a less technical background could do the course, if he or she finds handling economics mathematically comes naturally. Any such student should see Prof Razin before the course starts.

Course content

This course reviews fundamental concepts in Economic theory and presents some of its most successful applications. The first part of the course will introduce the student to the field of non-cooperative and cooperative/coalitional game theory and to models of bargaining. After setting up the primitives of the game theory framework, different solution concepts like are going to be studied with an emphasis through different applications. In studying models of bargaining, both axiomatic and non-cooperative approaches will be examined, such as Nash's axiomatic approach, the Rubinstein-Stahl model and the Baron-Ferejohn model of legislative bargaining. The second part of the course consists of an introduction to Auction Theory. It presents standard auction formats and discusses strategic behaviour in such environments. Auctions will be analyzed both in private and interdependent value environments. Fundamental topics such as the revenue equivalence theorem, the optimal auction design problem and the linkage principle will be covered in detail. Throughout the course departures from the standard model will be considered allowing for heterogeneity among players, risk aversion, and budget constraints. The focus of the course is mainly theoretical, but when possible some evidence supporting the formal models will be discussed with references to relevant work in the field.


15 hours of lectures and 8 hours of classes in the MT. 15 hours of lectures and 10 hours of classes in the LT. 2 hours of classes in the ST.

Formative coursework

Students are urged to attempt the assigned problems before attending classes. At least four pieces of written work will be required.

Indicative reading

M. Osborne, An Introduction to Game Theory, Oxford University Press, 2003. D. Ray, A Game-Theoretic Perspective on Coalition Formation, Oxford University Press, 2007. V. Krishna, Auction Theory, Academic Press, 2002.


Exam (100%, duration: 3 hours) in the main exam period.

Key facts

Department: Economics

Total students 2012/13: 16

Average class size 2012/13: 8

Value: One Unit

Guidelines for interpreting course guide information

PDAM skills

  • Self-management
  • Problem solving
  • Application of numeracy skills