Professional Documents
Culture Documents
What is analysis, and what are the four main Four parts are: Description
components of analysis? Explanation
Prediction
Prescription
o Communication
How do we solve coordination games? o Conventions
o Focal Points
• Rounds
• Strategy in the shadow of the future: taking
What are some elements of a repeated game? into account today what payoffs might
follow from this decision in the future
• Reputation and trust: are very important.
Desired reputation depends on what game
you are playing (as nice and trustworthy,
irrational in Chicken , etc)
• Rules
Start by cooperating. After that, copy what the
What are the rules of Tit for Tat, and what was other player did in the last round
it? • Was a computer program/algorithm
entered in contest against others
What is a market?
An institution for coordinating voluntary
exchange between individuals
• income
What are determinants of demand? • tastes
• complementary goods
• Other goods
o Prices
o Substitutability
Some people can’t pay for certain product
Something isn’t equitable
When would we intervene in a market? If market is immoral (prostitution)
Positive/negative externalities
Wages
• Public Goods
Where do we commonly see market failures? • Externalities
• Market Power (monopoly, cartels)
Imperfect information
What defines a common pool good? (think of tragedy of the commons and
freeways)
• Negotiations
o Cheating
How might we solve collective action failures? o Enforcement
• Government
• Privatization
• Social Norms –attach public stigma,
encourage behavior, give sticker to vote!
What is an externality?
What is a network externality? a positive consumption externality
As more people join the network, the network
increases in value.
• regulation
• Incentives (internalizing the Externality)
o Tax
o Subsidize
How do we solve externalities? • Negotiated compensation: winners pay
losers
Says that…
It doesn’t matter who is doing paying… if
State Coase’s Theorum property rights are well assigned in advance, then
parties can negotiate amongst themselves and
come up with solutions!
Requirements:
• parties
What are the elements of negotiation analysis? • issues
• interests
• alternatives to agreement
• zones of possible agreement
lack of information
• complexity
• Mistrust
What are the barriers to effective integrative • “claiming” behavior
bargaining? o Misinformation
o Commitments
o We cling as much value as we can
for ourselves without thinking
about expanding frontier
• Taxes or subsidies
• Aligning private costs and benefits with
social costs and benefits
• Examples
Define market perfecting o Gasoline taxes
o Research subsidies (or tax breaks)
• Issues
o how much is enough?
o Income and distribution effects
o Initial endowments
o Unfair processes
What are three rationales for redistribution? o “lumpy” prizes
Pareto principle
What are the three options to represent the Voting
public interest? Potential compensation
If everyone is at least well off, then there is no
question that social welfare has improved
Limits to the Pareto Principle
o Rarely do policies allow a pareto
What is the argument for/against the Pareto comparison
principle? o Usually, someone is better off,
someone worse
Is the sacrifice of one person worth the benefit
of others? When do we allow tradeoffs?