10-2-09 - Economics 448 Class Notes EXAM 14:01...

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Economics 448 – Class Notes – 10/2/09 14:01 EXAM: Exam material will cover through Roberts Asset specificity  – driving force in Williamson, Klein, Crawford, and Alchien Now lets imagine that asset specificity isn’t the most important Williamson – underlying assumptions of his theory: 1. Uncertainty 2. Bounded rationality and opportunistic behavior 3. Asset specificity Now for Milgran and Roberts, add a few more assumptions: 1. Uncertainty 2. Bounded rationality and opportunistic behavior 3. Asset specificity 4. Risk-neutral, financially unconstrained actors 5. Contracts CAN be written that govern short-term behavior, but CANNOT  be written to govern long-term behavior. 6. Everyone shares common beliefs about what might happen in the long-run
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Asset specificity is not that important  Efficient contract      – A contract is an efficient contract if there is no other feasible  contract that both parties prefer. * This is very similar to pareto efficiency  - no exchange or transaction can be  made that makes one party better without making the other party worse off. * No other feasible contract that makes both parties better off. What does G.M do at node b   acts opportunistically What does fisherbody do once GM reaches node b?  It doesn’t invest He tells you what happens at every node in the game Rollback equilibrium    
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