PRICE THEORY BY E. GLEN WEYL

PRICE THEORY
BY E. GLEN WEYL
MICROSOFT RESEARCH NEW ENGLAND AND UNIVERSITY OF CHICAGO
OPENING REMARKS AT THE BECKER FRIEDMAN INSTITUTE CONFERENCE ON “RECENT ADVANCES IN PRICE THEORY”
DECEMBER 3, 2015
BUILDING A PRICE THEORY COMMUNITY
 Fields represented: development, trade, health, IO, public, digitization, market design, macro-finance
 Discussants with similar range, matched by methods: incidence, sufficient statistics, large markets, etc.
 What unites these?
DIAGRAMS IN PRICE THEORY
DIAGRAMS WITH MORE COMPLETE MODELS
DIAGRAMS WHEN EMPIRICS COME BEFORE THEORY
PROBLEM SETS
 Price theory, from Becker: “Evaluate: In a monopsonistic labor market the imposition of a minimum wage above
the market wage must increase employment.”
 More complete, simple model: “Consider a model of positive selection in which 𝑟(⋅) is strictly decreasing and
there are two types of worker, 𝜃𝐻 and 𝜃𝐿 , with ∞ > 𝜃𝐻 > 𝜃𝐿 > 0. Let 𝜆 = 𝑃𝑟𝑜𝑏 𝜃 = 𝜃𝐻 ∈ (0,1). Assume that
𝑟 𝜃𝐻 < 𝜃𝐻 and that 𝑟 𝜃𝐿 > 𝜃𝐿 . Show that the highest-wage competitive equilibrium need not be a constrained
Pareto optimum.”
 Measurement before theory: “Card (1992) estimates the effect of the federal minimum wage using a two-period
state panel of 102 observations, exploiting the fact that in rich states the federal min is irrelevant, while in poor
states it is a big deal. Derive Card’s estimator from micro data (i.e., start with a model for micro data and explain
why estimating Card’s grouped equation makes sense in this context). Finally, propose an alternative possibly
more efficient procedure that also uses state-by-year means.”
DISTINCTIVE FEATURES OF PRICE THEORY
HISTORICAL FIGURES AND SCHOOLS
RECENT EXAMPLES
COMMON APPROXIMATIONS IN PRICE THEORY
1. Price-taking/large markets
2. Local approximation
a)
Envelope theorem
b)
Le Châtelier principle
c)
Quasi-linearity Kaldor-Hicks welfare aggregator
3. The Correspondence Principle
4. Symmetry
5. Aggregation (over units or time/static models)
6. Functional forms as approximations