lecture 9 Flashcards
what is power?
the ability to do and get the things we want, even if in opposition to the intentions od others
what are institutions?
written and unwritten rules that govern interactions of peolple in a joint project and the distribution of its products
what is bargain power?
the extent of a person’s advantage in securing a larger share of the economic rents made possible by an interaction
what is an allocation?
a descriptio of who does what, the consequences of their action, and who gets what as a result (outcome of an economic interaction)
what are the rules of the game: institution?
games specifies:
- players
- strategies
- payoffs
institutions must specify:
- who are the players
- what can each player do, and when
- after all is said and done, who gets what (allocations?
from an institution to a game:
- allocations + preferences of players = payoffs
- preferences define how much each player likes each allocation
how to evaluate an institution?
they infuence upon the balance of power in economic interactions, and that affects the efficiency (objective) and fairness (subjective→ what is fair to one person doesn’t mean is fair to another) of the results of those interactions
what is pareto efficient?
if there is no other feasible allocation where at least one player is better off and nobody is worse off (all feasible allocations).
an allocation that is not
Pareto-dominated by any other allocation is called Pareto efficient
what is pareto dominant?
if there exists an allocation where all are at least as well-off and someone improves (comparing two allocations)
what is pareto move?
change from one allocation where at least one player is better off and no one is worse off.
If an allocation is pareto efficient then there are no available pareto moves
what is pontential pareto improvement?
change from one allocation to another, where the gain of the player who is improving is enough to compensate the loss of the player who is getting worse
why can allocations be juged unfair?
because of:
- substantive judgements of fairness → how unequal the allocations are: in terms of income, for example, or subjective wellbeing
- procedural judgements of fairness → how the allocations came about: for example, by force, or by competition on a level playing field
* legitimacy of voluntary exchange
* equal opportunity
* deservingness
what does economic have to do with fairness?
they cannot eliminate disagreements about questions of fairness bc people may have diferent opinions on what is fair or unfair.
but economics can clarify
- how the rules of the game (and institutions) affect the dregree of inequality
- trade-offs between dimensions of fairness
how public policies adress concerns about unfairness
institutuions shape the fairness of allocations in the economy
