PUP-3002 Lecture Notes - Lecture 4: Pareto Efficiency, Economic Equilibrium, Free Market

54 views4 pages
9 Feb 2017
School
Course
Professor

For unlimited access to Class Notes, a Class+ subscription is required.

PUP3002
Professor Barrilleaux
Chapter 3 Lecture Notes Part 1/2
Florida State University
Chapter 3:
Institutions and Social Dilemmas
I. Institutions and Social Dilemmas
A. Institutions as Facilitators of Individual & Collective Action
a. Government and market institutions may be able to solve these
problems by:
1. Assigning the number of actors
2. Structuring the order of play
3. Constraining certain behaviors
4. Imposing costs on certain behaviors
b. By doing so, institutions hope to ‘improve’ the resultant outcomes of
societal interaction
c. Defining ‘Improvement’
1. What criteria should we apply to determine whether an institution
improves individuals’ positions?
2. Normative criteria
a. What the state of the world should be
3. Positive criteria
a. What the state of the world is
d. Improvement: Pareto Efficiency
1. Concept used to describe the relative levels of performance
among alternative states of allocating goods among individuals
2. If we change the allocation of goods among individuals and ‘no
individual is worse off’ and at least one individual is better off, it is
the Pareto Efficient.
e. Improvement: Kaldor-Hicks Criterion
1. Finding policy solutions that are Pareto efficient is often quite
difficult
2. Kaldor-Hicks criterion
a. When reallocating goods, if the beneficiaries collectively
gain more than the losers are made worse off, is efficient
3. Compensation Principle
a. The winners can potentially compensate the losers
b. Overall, society has a greater level of goods available
4. Example:
a. A three-person society is facing a problem
b. There are three policy solutions (A,B,C) available
c. Which are Pareto efficient?
find more resources at oneclass.com
find more resources at oneclass.com
Unlock document

This preview shows page 1 of the document.
Unlock all 4 pages and 3 million more documents.

Already have an account? Log in

Get access

Grade+
$10 USD/m
Billed $120 USD annually
Homework Help
Class Notes
Textbook Notes
40 Verified Answers
Study Guides
1 Booster Class
Class+
$8 USD/m
Billed $96 USD annually
Homework Help
Class Notes
Textbook Notes
30 Verified Answers
Study Guides
1 Booster Class