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  • 106 tables
  • Page extent: 604 pages
  • Size: 253 x 177 mm
  • Weight: 1.06 kg
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 (ISBN-13: 9780521539746 | ISBN-10: 0521539749)

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This book, first published in 2006, examines the incentives at work in a wide range of institutions to see how and how well coordination is achieved by informing and motivating individual decision makers. The book examines the performance of agents hired to carry out specific tasks, from taxi drivers to CEOs. It investigates the performance of institutions, from voting schemes to kidney transplants, to see if they enhance general well being. The book examines a broad range of market transactions, from auctions to labor markets, to the entire economy. The analysis is conducted using specific worked examples, lucid general theory, and illustrations drawn from news stories. Of the seventy different topics and sections, only twelve require a knowledge of calculus. The second edition offers new chapters on auctions, matching and assignment problems, and corporate governance. Boxed examples are used to highlight points of theory and are separated from the main text.


Part I. Equilibrium, efficiency, and asymmetric information: 1. Asymmetric information; 2. Taxi!; 3. Acid rain; 4. Efficiency; 5. Equilibrium; 6. The prisoner's dilemma game; 7. Repetition and equilibrium; Part II. Basic Models and Tools: 8. Maximizing a Quadratic; 9. Overview of calculus; 10. Lagrangian multipliers; 11. The composite commodity model; 12. Quasi-linear preferences; 13. Decision making under uncertainty; 14. Insurance; Part III. Hidden Action: 15. Resource allocation; 16. Marketable pollution rights; 17. Incentive regulation of the telecommunications industry; 18. The savings and loan debacle; 19. Personal bankruptcy; 20. Mandatory retirement; 21. Tenure and the performance of professors; 22. Pay and performance in US public schools; 23. Moral hazard and insurance; Part IV. Corporate Governance: 24. A brief tour of several countries; 25. Partnerships; 26. The owner-employee relationship; 27. The owner-manager relationship in practice; 28. Agency theory; Part V. Hidden Characteristics: 29. Price discrimination; 30. Two-person exchange; 31. The used car market; 32. Credit rationing; 33. Bundling and product quality; 34. Job market signaling; 35. Competitive insurance markets; Part VI. Auctions: 36. Introduction; 37. The Vickrey auction; 38. Four basic auction mechanisms; 39. Revenue equivalence; 40. Applications of the revenue equivalence theorem; 41. Interdependent values; Part VII. Voting and Preference Revelation: 42. Voting schemes; 43. Preference revelation in general; 44. General proof of the Gibbard-Satterthwaite theorem; 45. The revelation principle; Part VIII. Public Goods and Preference Revelation: 46. The economic model; 47. The pivotal mechanism; 48. Groves mechanisms; 49. Efficiency and incentive compatibility; Part IX. Matching: 50. Students and advisors; 51. College admissions; 52. Hospitals and doctors; 53. Allocating dormitory rooms; 54. Kidney transplants; Part X. General Competitive Equilibrium: 55. Competition, property rights, and prosperity; 56. The Arrow-Debreu economy; 57. Non-convex economies; 58. Efficiency and incentive compatibility; 59. Common property resources.


"Incentives are what economics is all about. We have learned a lot of late about how incentives work and how to design better ones. From pay for performance to auctions to voting schemes, from pollution control to college admissions, it's all in this book. Donald Campbell does a masterly job of synthesis, making modern theory accessible and drawing out its very practical applications." -–John McMillan, Stanford University

"In this second edition, Professor Campbell has transformed an excellent book on incentives into the ideal text for a course in the economics of information. The clarity of writing and choice of examples makes most of the material accessible to upper level undergraduate economics majors, in addition to graduate students. Many applications are identified and explored, and these give the reader a clear sense of the central importance of informational issues in 21st Century economics. The new chapters on auctions and matching provide added depth to two leading applications." -–Thomas R. Palfrey, Princeton University

"Undergraduates think that economics is the dismal science, not because economists' predictions are so pessimistic, but because so much of what they are taught is boring. But they are interested in knowing why so many used cars are lemons, why their grades didn't get them into a better university, and why they paid too much in an internet auction. To learn how to answer these and other questions concerning incentives and asymmetric information, there is no better place for an undergraduate to turn than the new edition of Don Campbell's Incentives." -–John A. Weymark, Vanderbilt University

"The significant revisions in the second edition make an already excellent advanced undergraduate microeconomics textbook even better, not to mention more comprehensive. There are new chapters and sections on auctions, matching and assignment problems, credit rationing, incentive regulation of the telecommunications industry, marketable pollution rights, and school choice. Contemporary topics that may particularly interest readers include corporate governance (with an explanation of the Enron debacle), pay and performance in US public schools, and the incentive to harbor terrorists. Students will find the addition of dozens of cute, paragraph-long stories from current events that illustrate or reinforce the theory presented especially appealing." -–Yuan K. Chou, University of Melbourne

"The book was great to begin with, and a lot of changes have been made to improve it. The book's greatest strength lies in its presentation of advanced topics by using basic calculus to work through example problems. This makes the book accessible to undergraduates. It also makes it useful for first-year graduate students who want to see specific numerical examples of the theoretical concepts covered in their classes. I like the new stories and applications included, particularly the sections on corporate governance and auctions." -–Sita Slavov, Occidental College

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