ECO320H1 Study Guide - Midterm Guide: Coase Theorem, Transaction Cost, State Ownership
Document Summary
The law of property supplies the legal framework for allocating resources and distributing wealth. Economic theory tries to predict the effects of alternate forms of ownership, especially the effects on efficiency and distribution. Property is a bundle of rights over resources that the owner is free to exercise and whose exercise is protected from interference by others. Not immutable, and can change from generation to another. The payoffs to the parties in the noncooperative solution. Must receive at least the threat value or no advantage in cooperating. Determining the cooperative surplus the value created by moving the resource to a more valuable use. Agreeing on terms for distributing the surplus from cooperation. The most efficient outcome is when the joint profits (total profit) are greatest. Law is unnecessary and undesirable where bargaining succeeds and that law is necessary and desirable where bargaining fails. Transaction costs: costs of communicating/ all impediments to bargaining -> cost of exchange.
