Week 5 Key definitions

Question 1

Insitutions

Answer 1

The laws and social customs governing the way people interact in society.

Question 2

Power

Answer 2

The ability to do (and get) the things one wants in opposition to the intentions of others, ordinarily by imposing or threatening sanctions.

Question 3

Bargaining power

Answer 3

The extent of a person’s advantage in securing a larger share of the economic rents made possible by an interaction.

Question 4

Allocation

Answer 4

A description of who does what, the consequences of their actions and who gets what as a result.

Question 5

Pareto criterion

Answer 5

According to the Pareto criterion, a desirable attribute of an allocation is that it be Pareto-efficient.

Question 6

Pareto dominant

Answer 6

Allocation A Pareto dominates allocation B if at least one party would be better off with A than B, and nobody would be worse off.

Question 7

Pareto improvement

Answer 7

A change that benefits at least one person without making anyone else worse off.

Question 8

Pareto efficient

Answer 8

An allocation with the property that there is no alternative technically feasible allocation in which at least one person would be better off, and nobody worse off.

Question 9

Pareto efficiency curve

Answer 9

The set of all allocations that are Pareto efficient. Often referred to as the contract curve, even in social interactions in which there is no contract, which is why we avoid the term.

Question 10

Substantaive judgements of fairness

Answer 10

Judgements based on the characteristics of the allocation itself, not how it was determined.

Question 11

Procedural judgements of fairness

Answer 11

An evaluation of an outcome based on how the allocation came about, and not on the characteristics of the outcome itself, (for example, how unequal it is)

Question 12

Economic rent

Answer 12

A payment or other benefit received above and beyond what the individual would have received in his or her next best alternative (or reservation option).

Question 13

Joint surplus

Answer 13

The sum of the economic rents of all involved in an interaction.

Question 14

Lorenz curve

Answer 14

A graphical representation of inequality of some quantity such as wealth or income. Individuals are arranged in ascending order by how much of this quantity they have, and the cumulative share of the total is then plotted against the cumulative share of the population. For complete equality of income, for example, it would be a straight line with a slope of one. The extent to which the curve falls below this perfect equality line is a measure of inequality.