Advanced Microeconomic Theory, 3rd Edition

THIRD EDITION The classic text in advanced microeconomic theory, revised and expanded. Advanced Microeconomic Theory remains a rigorous, up-to-date standard in microeconomics, giving all the core mathematics and modern theory the advanced student must master. Long known for careful development of complex theory, together with clear, patient explanation, this student-friendly text, with its efficient theorem-proof organisation, and many examples and exercises, is uniquely effective in advanced courses. New in this edition • General equilibrium with contingent commodities • Expanded treatment of social choice, with a simplified proof of Arrow’s theorem and complete, step-by-step development of the Gibbard – Satterthwaite theorem ADVANCED MICROECONOMIC THEORY ADVANCED MICROECONOMIC THEORY THIRD EDITION GEOFFREY A. JEHLE PHILIP J. RENY GEOFFREY A. JEHLE PHILIP J. RENY • Extensive development of Bayesian games • New section on efficient mechanism design in the quasi-linear utility, private values environment. The most complete and easy-to-follow presentation of any text. • Over fifty new exercises Essential reading for students at Masters level, those beginning a Ph.D and advanced undergraduates. A book every professional economist wants in their collection. GEOFFREY A. JEHLE PHILIP J. RENY ADVANCED MICROECONOMIC THEORY THIRD EDITION Cover photograph © Getty Images www.pearson-books.com CVR_JEHL1917_03_SE_CVR.indd 1 10/11/2010 16:08 Advanced Microeconomic Theory We work with leading authors to develop the strongest educational materials in economics, bringing cutting-edge thinking and best learning practice to a global market. Under a range of well-known imprints, including Financial Times Prentice Hall, we craft high quality print and electronic publications that help readers to understand and apply their content, whether studying or at work. To find out more about the complete range of our publishing, please visit us on the World Wide Web at: www.pearsoned.co.uk. Advanced Microeconomic Theory THIRD EDITION G E O F F R E Y A. J E H L E Vassar College P H I L I P J. R E N Y University of Chicago Pearson Education Limited Edinburgh Gate Harlow Essex CM20 2JE England and Associated Companies throughout the world Visit us on the World Wide Web at: www.pearsoned.co.uk First published 2011 c Geoffrey A. Jehle and Philip J. Reny 2011 The rights of Geoffrey A. Jehle and Philip J. Reny to be identified as author of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without either the prior written permission of the publisher or a licence permitting restricted copying in the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street, London EC1N 8TS. ISBN: 978-0-273-73191-7 British Library Cataloguing-in-Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging-in-Publication Data A catalog record for this book is available from the Library of Congress 10 9 8 7 6 5 4 3 2 1 14 13 12 11 Typeset in 10/12 pt and Times-Roman by 75 Printed and bound in Great Britain by Ashford Colour Press Ltd, Gosport, Hampshire To Rana and Kamran G.A.J. To Dianne, Lisa, and Elizabeth P.J.R. CO N T E N T S PREFACE xv PART I ECONOMIC AGENTS 1 CHAPTER 1 CONSUM