ECON 040 Lecture Notes - Lecture 27: Coase Theorem, Nash Equilibrium, Coordination Game
30 Dec 2020
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Document Summary
Coordination game: these are a type of game where the players benefit from coordinating their decisions. Battle of the sexes: a common example of a coordination game where player differ with respect to which activity they would prefer to engage in, but they still prefer engaging in the same activity over going alone. Strategy profile: denotes a set of strategies, one for each player. In this example there are four strategy profiles where theatre = t and s = stadium: (t,s),(t,t),(s,t),(s,s). Nash equilibrium: a strategy profile is in nash equilibrium if no player can benefit from unilaterally changing their strategy: in this case the strategy profiles (t,t) and (s,s) constitute the nash. Coase theorem: states that if trade in an externality is possible there are not transaction costs, bargaining will lead to an efficient outcome regardless of initial allocation of property rights. This is also the idea that inefficiency arising from externalities can be solved without.
