Modern Principles of Economics 3rd Edition By Tyler Cowen
What’s New in the Third Edition?
Every book must change with the time and ours has too. The new edition of
Modern Principles of Economics includes many additions and structural changes:
1. We include a new Chapter 24, “Asymmetric Information: Moral Hazard
and Adverse Selection.” This chapter covers principal–agent problems and
how producers may attempt to take advantage of consumers, for instance,
when the producer knows more about the quality of the good than does
the consumer. The key concepts of moral hazard and adverse selection are
stressed and illustrated with examples, including automobile mechanics,
used car salespeople, doctors, health insurance, and online Internet reviews.
We also discuss signaling, such as how candidates prove they are worthy
of jobs and why engagement rings are bought to signal the quality and
commitment of a potential mate.
2. We have reorganized our chapters on game theory, added new material
on game theory and new applications, and turned two chapters into three.
In addition to the new chapter on asymmetric information (previously
mentioned), the new Chapter 15 is “Oligopoly and Game Theory.” It has
more on cheating games, prisoner’s dilemma, and cartel stability than the
previous edition did. There are also new discussions of price matching
games and also consumer loyalty programs, such as frequent flyer miles and
buyer clubs. We again use game theory to help illuminate the world that
students actually spend their money in.
3. The new version of Chapter 16 is now “Competing for Monopoly:
The Economics of Network Goods.” This chapter considers goods that are
more valuable as the number of users increases, such as Facebook, where
users wish to share a common network with their friends. Or perhaps
listeners wish to share and discuss a common favorite song. We consider
whether consumers can be stuck in the wrong network, why these markets
often have concentrated supply (there is no close competitor to Facebook),
and how such markets can drive high rates of innovation.