1 of 1 people found the following review helpful
clear explanation of advanced micro,
This review is from: Advanced Microeconomic Theory (Paperback)
There are several texts that purport to address advanced micro economics and this is one of the most readable and accessible, hence the high score.
Lets be real honest, MWG is a superb work of epic (and I used the term purposefully) proportions, but it is not an easy or comfortable read. Jehle & Reny (JR) is the very opposite and you can sit down and read it, rather than having to puzzle over it. So a big positive is the text that goes with the maths. The second is the maths and notation is consistently used throughout the book (unlike the likes of Gravelle & Reese where it is confusing and seems to vary over chapters). The maths as the other reviewer noted uses much more vector notation, which if you are not used to it takes a while to get in to, but it does clean things up a lot when you get going.
The almost ubiquitous micro economics maths appendix (pages 495 - 693!) says it all - if you are not a confident mathematician, then you need to fix that before you start to get in to this book. I still think this is a shame that advanced micro has gone overly down this mathematical route - if you read ch3 theory of the firm, this is nothing more that you would have studied as a year 2 under grad, just all set out in maths! The point being????
The best chapters to me are 1 2 4 5 6. I thought the game theory chapter was ok, if you knew all about it - there are better specialist books that are easier to get into if this is a new area of study for you. Ch 8 and 9 are ok but some of the journal papers are better and clearer.
The one area that I think is well done, but is overall disappointing is ch 5 General Equilibrium. This chapter focuses almost exclusively on proving existence - which we had sort of covered (albeit less formally) at 3 year under grad. I was hoping that this book (being advanced) would have considered some of the deeper aspects of this area - around uniqueness, stability and sustainability etc which are only mentioned in the intro to the chapter.
As an example:
One interesting exercise is to actually think about how practically you might move from a set of initial resource allocations, set of production functions and individual utility functions to a general equilibrium - not by abstract mathematical optimization, but by incremental trades over time. This was one of the most interesting discussions we had as a group - caused massive debate and argument (much more fun that doing the exercises around proofs!
1. Everyone knows their own resource bundle, production functions and initial individual utility from their resource bundle alongside a utility function for valuing alternatives - but you have no price vectors at all! So, unless someone in round 1 is prepared to put out a price vector then ..... go to step 2. (no one does by the way)
2. We need to invent money - amazing that we so frequently ignore this key step in analyzing markets and its role in transmitting information! (I think it is not even mentioned in JR ch 5.) So we vote on which commodity becomes money - NB the implications of Arrows Impossibility Theorem here! Bit of benign monarchy required, maybe.
3. Now we hope that we can get get some price vectors published - these need not be consistent (very unlikely to be initially) and an individual can trade at any point as they would in the real world (the round closes when everyone has traded or declined to trade) What we are doing is removing the Walrasian tattonemont 'fix' and allowing trading in dis-equilibrium.
So some individuals will now have moved from their initial resource allocation to a new bundle of goods (traders) while others have done nothing.
you can repeat the cycle as often as you like
Key questions to consider:
1. Does the end of first set of trades produce an equilibrium - easy one - no, only by a complete fluke. But are the results at the end of the first trades a pareto improvement?
2. If rounds are repeated, will the economic system move towards an equilibrium? If yes, what is the mechanism driving it? If no, what is needed to make it move in that direction? (what are the economic forces at play here)
3. Does the equilibrium itself move as disequilibrium trades are made in each round? What does this imply for uniqueness?
4. Does this process provide any insight in to inequality or causes of inequality?
5. how long will it take to get to an equilibrium?
This thought experiment approach is also an interesting way to consider a shock to a market and how the system would restore general equilibrium.
I think by the above you might have guessed that I am a little skeptical in simplistic partial equilibrium analysis and the real danger of letting overly complex mathematical solutions dominate and subsume what is very human process - the market. surely modern advanced micro should invest more in studying the implications of dynamic change over time in dis-equilibrium! I fear that all we have done so far in economics is lay out and codify what is a special case, not the norm.
As always - thoughts and comments on the above most welcome indeed