micro-2009-2 - Analyzing Economic Problems and Institutions...

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Analyzing Economic Problems and Institutions Economic Problems (3) Coordination of activities In general, rationality and equilibrium considerations are not su¢ cient to characterize a situation uniquely. Example Joint border controls Countries: Country 1, Country 2 Investments: 0, 1 Pay-o/s: Country 2 Country 1 0 1 0 0 ; 0 0 ; ° 1 1 ° 1 ; 0 1 ; 1 Ani Guerdjikova Fall 2009 13 / 246
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Analyzing Economic Problems and Institutions Institutions Institutions Institutions regulate the allocation of scarce resources. Institutions coordinate agents°behavior. Institutions di/er w.r.t.: their transaction costs; necessary information; implementability of actions. Examples: ( ± ) exchange ( ± ) auctions ( ± ) markets ( ± ) centralized allocation ( ± ) ±rms Ani Guerdjikova Fall 2009 14 / 246
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Markets Markets 1 Homogenous goods agricultural products: wheat, beef, wool, cotton, etc. mineral resources: gold, silver, copper, etc. ±nancial assets: shares, bonds, etc. 2 Heterogenous goods food: vegetables, fruits, meat, bread, pastry, etc.
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