Masterarbeitsthemen

Topic 1: Product Differentiation in General Equilibrium Models: Beyond the CES-Representative Consumer Model

The understanding of product differentiation is crucial to understand how modern market economies operate. Many general equilibrium models incorporate product differentiation by using the CES representative consumer model. Yet, this representation satisfies the restrictive condition of independence from irrelevant alternatives. Thus, the ratio of demand for any two varieties is independent of the other varieties prices. Firms compete only through the common price index but there is no strategic interaction. Linear demand models can offer an alternative to the CES representation because they are analytically tractable and allow analyzing strategic behavior.

Literature:
Zhelobodko, E., S. Kokovin, M. Parenti, and J.F. Thisse (2011). Monopolistic Competition in General Equilibrium: Beyond the CES. Mimeo.
Anderson , S.P., A. de Palma, and J.F.Thisse (1992): Discrete Choice Theory of Product Differentiation. Cambridge , Massachusetts : MIT Press.
Ottaviano, G.I.P. and J.F. Thisse (1999): Monopolistic Competition, Multiproduct Firms and Optimum Product Diversity. EUI Working Paper ECO No. 99/31.
Melitz, M. J. and G.I.P. Ottaviano (2005) Market Size, Trade, and Productivity. NBER Working Paper 11393.

Topic 2: Search-theoretic models of the labor market

In the Corona-crisis, short-time employment has been heavily subsidized by all governments in the EU in order to keep employment up. This is not done, as repeatedly said, in order to stabilize incomes of the employees to keep demand high but to stabilize employees-firm relationships. It is very hard, is argued, to bring dismissed people back to a job. Why is that? Why can it be optimal for a worker not to take the first offer but to wait unemployed for a better offer later? Why might it reduce the potential of productivity growth if job seekers are forced to take on any job?

This master thesis shall have a look in the literature of labor market search.
Literature to start with:

Rogerson, Richard, Robert Shimer, and Randall Wright. 2005. "Search-Theoretic Models of the Labor Market: A Survey." Journal of Economic Literature, 43 (4): 959-988.

Patterson, Christina & Şahin, Ayşegül & Topa, Giorgio & Violante, Giovanni L., 2016. "Working hard in the wrong place: A mismatch-based explanation to the UK productivity puzzle" European Economic Review 84(C): 42-56.

Hall, Robert E. and Marianne Kudlyak (2020). Why Has the US Economy Recovered So Consistently from Every Recession in the Past 70 Years? NBER Working Paper 27234.

Topic 3: Perfect competition and the creativity of the market

Perfect competitions is usually associated with price taking behavior which restricts the actions that a firm can take. Yet, that is not the only possible way to formulate perfect competition. In a series of papers, Makowski and Ostroy have proposed a different formulation that features prices that are not exogenous but resulting from bargaining and markets that are not given but emerge from innovation.

The master thesis shall have a look at this approach.

Suggested literature to start with:

Makowski, Louis and Joseph M. Ostroy (2001). „Perfect competition and the creativity of the market.“ Journal of Economic Literature 39: 479-535.

Makowski, Louis and Joseph M. Ostroy (1998). „Arbitrage and the flattening effect of large numbers.“ Journal of Economic Theory 78: 1-31.

Topic 4: Heterogeneous agents in general equilibrium models

Krusell and Smith (2006) study a inter-temporal general equilibrium model with heterogeneous firms. Individuals are hit by idiosyncratic unemployment shocks, the economy by aggregated once.  Krusell and Smith discuss a numeric solution concept to solve for equilibria of such an economy recursively. They show that the equilibrium solution depends on the distribution of individuals’ wealth. Discuss the role of heterogeneity for the equilibrium solution in order to understand how the equilibrium deviates from the representative agent’s solution.

Literature:

Krusell and Smith (2006). Quantitative Macroeconomic Models with Heterogeneous Agents. Advances in Economics and Econometrics: Theory and and Applications, Ninth World Congress, Econometric Society Monographs, 41, Cambridge University Press, 298-340, 2006.