Unit 5 - Property and Power: Mutual Gains and Conflicts Flashcards
Define Institutions.
Institutions are written and unwritten rules that govern:
what people do when they interact in a joint project and the distribution of the products of their joint effort
What is Bargaining Power?
The extent of a person’s advantage in securing a larger share of the economic rents made possible by an interaction. (a take-it-or-leave-it offer gives the Proposer more bargaining power than the Responder)
= control
Illustrate an Allocation.
A description of who does what, the consequences of their actions, and who gets what as a result.
Describe the “Pareto Criterion”.
According to the Pareto criterion, allocation A dominates allocation B if at least one party would be better off with A than B, and nobody would be worse off.
-> Pareto Dominant
Define Pareto Efficient.
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.
(there is often more than one Pareto Efficient allocation)
= one is always BETTER off (but Pareto Efficiency has nothing to do with fairness)
Pareto efficiency means that no Pareto improvement is possible without making one worse than the other
Describe a Substantive Judgment of Fairness.
Judgments based on the characteristics of the allocation itself, not how it was determined.
= what it is
Define a Procedural Judgment of Fairness
An evaluation of an outcome based on how the allocation came about, and not on the characteristics of the outcome itself.
= how it became
Define “technically feasible”.
An allocation within the limits set by technology and biology.
Define “biologically feasible”.
An allocation that is capable of sustaining the survival of those involved is biologically feasible.
What is a Joint Surplus?
The sum of the economic rents of all involved parties exchange or trade.
What is a Reservation Option?
A person’s next best alternative among all options in a particular transaction. Also known as: fallback option.
Define a Pareto Improvement.
A change that benefits at least one person without making anyone else worse off.
What is a Disposable Income?
Income available after paying taxes and receiving transfers from the government.
How do you obtain an “economically feasible allocation”.
After defining the limits imposed by biology and technology and if cooperation is voluntary, we look for economically feasible allocations: which could provide mutual gains (a surplus), and therefore are Pareto-improving relative to the reservation positions of the parties involved.
Extra info :) :
A feasible allocation will arise depends on the bargaining power of each party, which determines how a surplus will be shared and in turn depends on the institutions governing the interaction.
