Syllabus (PDF)

Course Meeting Times

Lectures: 2 sessions / week, 1.5 hours / session


The objective of this course is to introduce you to the role of government in markets where competitive equilibria "fail." In this course we will emphasize the importance of market structure and industrial performance, including the strategic interaction of firms. We will examine the behavior of individual markets in some detail, focusing on cost analysis, the determinants of market demand, investment behavior, market power, and the implications of government regulatory behavior. The course will be broken into three parts. In the first part, we will review firm behavior and the theory of the market. Here, we will discuss perfectly competitive markets (our "benchmark"), efficiency, market structure, strategic competition, and productivity. Once the foundations of the market are well understood, we will then move on to the second part of the course, where we will study "economic" regulation. Here, we will look at the behavior of natural monopolies and regulatory options for dealing with them. And in the third part of the course, we will study "social" regulation—focusing on environmental, health, and safety regulation.

The assigned readings in this course have been selected to provide a balance of principles, tools and applications; they are detailed in the course syllabus. The basic text for the course is W. Kip Viscusi, John M. Vernon, and Joseph E. Harrington, Economics of Regulation and Antitrust, 3rd. edition (MIT Press, 2000) and will be referred to as "VVH."

All other materials will be handed out in lecture or will be available on the web. You will be expected to have read the required material before class. Doing so will make the lectures more profitable.

In addition to these readings, you should keep informed about current economic issues by reading The Wall Street Journal or the Business section of The New York Times on a regular basis. A magazine such as Business Week or The Economist is also useful for this purpose.

I will assign 5 homework sets in this course. My policy regarding cooperative work on these homework sets is discussed under Policy on Homework Sets and Exams; please read it carefully. I assume that you will work on the individual problems as the material is covered in the lectures, not leaving the whole set to be done on the day before it is due.

There will be one midterm examination. The midterm will be given in class and is scheduled for Class #13. The final exam is scheduled during the regular examination period. Please note that there will be NO make-up exams for the midterm examination. If you miss the midterm, you either must have a doctor’s note to verify that you were sick or a note regarding a family emergency that I can verify. No other excuses will be accepted. Please note that if you miss more than one exam for any reason, credit will not be given for the course.

Grading will be based on the examinations and homework sets as follows:

Midterm examination: 40%
Final examination: 40%
Problem sets: 20%

Policy on Homework Sets and Exams

  1. Homework sets are designed to help you learn how to apply the material presented in lectures. You are permitted and indeed encouraged to discuss course material, including homework, with other students in the class. However, you are expected to turn in your own individual solutions for each homework set. Discussion with others is intended to clarify ideas, concepts, and technical questions, not to derive group homework set solutions. Identical homework set answers (especially when the steps used to derive answers are not shown or when questions of interpretation are involved) violate this policy and may receive no credit or occasion disciplinary action.
  2. Handwritten solutions are fine, as long as they are legible and neat. Please remember: if we can't read it, we can't grade it.
  3. In fairness to students who complete assignments on time, late homework sets will not be accepted. You must turn in assignments during the lecture on the day they are due or earlier in the day to my mailbox. Please note that assignments put under my office door will be discarded.
  4. During exams, you may consult the proctor administering the exam if you need clarification of exam questions. No discussion or other form of communication with anyone else will be permitted after the exams have been handed out, until all students have turned in their exam books. Students found to have cheated or engaged in any other unethical behavior will be given a grade of F on the examinations involved, and will be turned over to the appropriate disciplinary committees within MIT for further action.
  5. The only calculators permitted in exams are those with basic mathematical functions. Calculators that are capable of storing spreadsheets, user-defined functions, etc. (such as the Hewlett-Packard Palmtop) may not be used in exams.

If you have any questions regarding these policies, please raise them with me.