5 - Property and Power: Mutual Gains and Conflict Flashcards
(28 cards)
What do institutions do?
- Govern what people do when they interact jointly
- Govern the distribution of the products of their joint interaction
What main forms does power take in economics?
- Set the terms of an exchange
- Impose or threaten to impose costs
What power is there in the ultimatum game?
Bargaining power
Who often sets the terms of the exchange in the labour market?
The employer - they propose the wage and other terms of employment
When did workers get more bargaining power in the market?
New institutions such as trade unions and the right to vote.
Middle of 1800s.
What is the dictator game?
The proposer can propose anything, and the responder has no choice but to accept whatever he gets.
What is the Pareto criterion?
Allocation A pareto dominates another, B, if at least one party is better off at A than B and nobody else is worse off.
How can you show Pareto domination on a payoff matrix?
Whichever outcome is most North-Eastern.
I,I pareto dominates T,T.
T,I I,I I,T are equally viewed by the Pareto criterion.
The Pareto Criterion is fair? T/F?
False.
Gives no mention to fairness.
How can allocations be judged on their fairness?
- How unequal they are (substantive judgements of fairness)
- How they came about (procedural judgements of fairness)
What are substantive judgements?
Based on inequality in some aspect of the allocation.
- Income
- Happiness
- Freedom etc.
What are procedural judgements?
The rules of the game can be evaluated by asking:
* was the exchange of private property legitimate
* was there equal opportunity for economic advantage
* was the winner/loser deserving
How can we evaluate fairness?
Rawls - Veil of Ignorance
If the IC is steeper, x values work to leisure. T/F?
False.
x values leisure to work.
What is the assumption when shifting ICs?
Quasi-linearity.
The MRS does not change at a given point when you shift IC up or down.
How much grain will Bruno take from Angela if she works 10.5 hours?
Bruno is landowner, Angela pays rent of 50% of her work to Bruno.
5.25 bushels.
Why can Bruno not take all of the bushels?
He would kill Angela.
His reservation option is 0 if she dies.
Where does the biologically survival constraint lie on a feasible frontier graph?
Where is biologically and technologically infeasible on this graph?
The non-shaded area.
Area above the graph.
Respectively.
Where is the economic rent of the landowner greatest on a feasible frontier with biological constraint?
Where MRS of biological constraint = MRT of frontier
i.e. slope of frontier = slope of biological constraint
Why do people take participate voluntarily in an interaction?
They believe it will be better than their reservation option.
How is the share of the surplus decided?
Bargaining power.
What happens if slavery is made illegal?
Draw this on a feasible frontier and note the economically feasible set.
In terms of the feasible frontier and biological constraint?
Angela’s indifference curve is now taken into account.
Where is the economic rent of the landowner greatest on a feasible frontier with IC?
MRS of IC = MRT of feasible frontier
