ECON408 Study Guide - Midterm Guide: Planning Fallacy, Nash Equilibrium, Computational Problem
14 Mar 2016
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Social planner is omnipotent and omniscient: maximize utility or joint profits. Omnipotent - powerful and can enforce what he decides. Omniscient - all knowing and can tell what is the socially optimum outcome. Agents consumers in the society: free agency, can make own choices, type (theta) Social planner: objective expressed as a function is to choose alternative x such that x is an element of arg max (the thing that maximizes a function) f(theta) To maximize amount of smoking in room he could say i know how much disutility you get from smoking so i will impose a tax for every cigarette smoked in here . It is assumed that the social planner is able to determine this information (cid:1) Social objective maximize f1(theta1) + f2(theta2) Agent1 has (theta1) agent 2 has (theta2: bargain with rights1. The law is right to breathe clean air: bargain with right 2.
