ECO320Y5 Lecture Notes - Lecture 6: Sequential Game, Bargaining, Conditionality
Document Summary
Theorem of coase: high tc -> con of t. oc if transaction costs are high, there will be a barrier (no contracts, low tc contract. Exchange of property rights bargaining theory example 4. Adam has a 1957 chevy convertible in good condition. The pleasure of owning and driving the car is worth ,000 to adam. Blair decides that the pleasure of owning and driving this car is worth ,000 to her. Since the potential seller (adam) values the car less than the potential buyer (blair), there is scope for a bargain. All pre-(cid:396)e(cid:395)uisites fo(cid:396) coase"s theo(cid:396)e(cid:373) a(cid:396)e p(cid:396)ese(cid:374)t. No government telling them that they have to buy the car. Adam will not accept less than 3000 for the car. Blair will not pay more than 4000 for the car although she has a total wealth of 5000. A bargaining game (john nash) predicts the exchange price will be ,500. Nash eq. and optimum point converge same point.
