The Coordination Problem Solutions Central Decision Making Decentralized Decision Making
The Coordination Problem Solutions Central Decision Making Decentralized Decision Making
Decentralized Decision Making If individuals are rational and nobody affects anyone else If individuals are rational and all effects on others taken into account To first approximation,prices and voluntary trade do that Law is largely about dealing with the second approximation
Decentralized Decision Making •If individuals are rational and nobody affects anyone else •If individuals are rational and all effects on others taken into account • To first approximation, prices and voluntary trade do that • Law is largely about dealing with the second approximation
Market Failure Situations where individual rationality does not produce group rationality
Market Failure • Situations where individual rationality does not produce group rationality
Prisoner's Dilemma Bill and Joe jointly commit a crime,are caught.D.A.'s offer to each: If neither of you confesses,I can convict you of resisting arrest,1 year in prison. If you confess and he doesn't,I'll let you off with 3 months If he confesses and you don't,you get 3 years. If both of you confess,you get 2 years
Prisoner’s Dilemma • Bill and Joe jointly commit a crime, are caught. D.A.’s offer to each: • If neither of you confesses, I can convict you of resisting arrest, 1 year in prison. • If you confess and he doesn’t, I’ll let you off with 3 months • If he confesses and you don’t, you get 3 years. • If both of you confess, you get 2 years
Confess Don't confess Confess 2 years 3 months 2 years 3 years Don't Confess 3 years 1 year 3 months 1 year
Confess Don’t confess Confess 2 years 2 years 3 months 3 years Don’t Confess 3 years 3 months 1 year 1 year
Market Failure Prisoner's Dilemma Writ Large
Market Failure •Prisoner’s Dilemma Writ Large
Externalities ·The Problem ●Solutions ●Regulation Pigouvian Tax ·??Chapter4??
Externalities •The Problem •Solutions •Regulation •Pigouvian Tax •??? Chapter 4 ???
Regulation What Problems Does it Raise? Incentives Information
Regulation • What Problems Does it Raise? Incentives Information
Effluent Fee/Pigouvian Tax/Carbon Tax .What Problems does it Raise?
Effluent Fee/Pigouvian Tax/Carbon Tax •What Problems does it Raise?
Carbon Tax
Carbon Tax
