Please note: there may be some adjustments to the teaching arrangements published in the course catalogue for 2020-21. Given current circumstances related to the Covid-19 pandemic it is anticipated that some usual arrangements for teaching on campus will be modified to ensure the safety and wellbeing of students and staff on campus; further adjustments may also be necessary, or beneficial, during the course of the academic year as national requirements relating to management of the pandemic are revised.

Market Failures and Mechanism Design ECON4056

  • Academic Session: 2022-23
  • School: Adam Smith Business School
  • Credits: 15
  • Level: Level 4 (SCQF level 10)
  • Typically Offered: Semester 2
  • Available to Visiting Students: Yes
  • Available to Erasmus Students: Yes

Short Description

The course is devoted to situations of market failure, often overlooked in undergraduate Economics curriculum. It discusses the importance and implications of group incentives in Economics, as well as situations when ethical or political considerations call for market design. Many specific applications are considered.


10 x 2-hour lectures

Additional 2 hour revision session outwith regular teaching

5 x 1 hour tutorials during alternate weeks

Requirements of Entry

Mandatory Entry Requirements


Entry to an Honours programme in Economics or a minimum grade C3 (average) in Economics 2A and 2B for students taking an Honours programme in another subject.

Excluded Courses





ILOs 1-5 are assessed in a 1-hour in-course exam (30%) and a 2-hour degree examination (70%) 

Main Assessment In: April/May

Are reassessment opportunities available for all summative assessments? No

Reassessments are normally available for all courses, except those which contribute to the Honours classification. For non-Honours courses, students are offered reassessment in all or any of the components of assessment if the satisfactory (threshold) grade for the overall course is not achieved at the first attempt. This is normally grade D3 for undergraduate students and grade C3 for postgraduate students. Exceptionally it may not be possible to offer reassessment of some coursework items, in which case the mark achieved at the first attempt will be counted towards the final course grade. Any such exceptions for this course are described below. 

Course Aims

The main aims of the course are:

■ To present the formal models of cooperative behavior, both from the normative viewpoint of sharing the benefits of cooperation, and the positive analysis of coalition formation.

■ To demonstrate how economic agents form and dissolve partnerships in the presence of partially conflicted incentives.

■ To show the significance of the problem of market failure and demonstrate need for market design.

■ To introduce students to a wide range of specific applications of market design.

Intended Learning Outcomes of Course

By the end of this course students will be able to:

1. Demonstrate understanding of the basic concepts of modelling cooperation, such as stability, core, values of the game, Shapley value, and coalition formation.

2. Explain and show necessity of market design in various economic situations; demonstrate familiarity with a variety of specific mechanisms.

3. Apply knowledge and understanding of the core concepts and models of cooperation and mechanism design by successful problem solving.

4. Build and analyse models involving group incentives and use these models to explain a variety of economic, social, and political phenomena.

5. Recognise situations where market design approach is appropriate, and build adequate models for such situations, isolate desirable properties of an outcome and propose appropriate mechanisms.

Minimum Requirement for Award of Credits

Students must submit at least 75% by weight of the components (including examinations) of the course's summative assessment.