10-5-09 - Economics Class Notes 10/5/09 Costs of using the...

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Economics – Class Notes – 10/5/09 Costs of using the marketplace (according to Milgrom and Roberts): Williamson emphasized the ex post costs (the enforcement costs) of contracting. Ex post enforcement costs are extremely difficult to enforce The costs in the marketplace are: Search Bargaining Enforcement o Both bargaining and enforcement costs have to be high in order for the marketplace to not work (according to Milgrom and Roberts) If either Bargaining costs are high an enforcement costs are low, or vice versa, then those costs can be accounted for in a contract to prevent opportunistic behavior Milgrom and Roberts: Coordination Failures Dominant strategy : Best move regardless of the other player’s move. Regardless of what one player does, the other player The cost of coordinating : There is an outcome where both players are better (when they cooperate), but because each player is acting in their own self-interest, they will choose the outcome that’s best for his or herself, even though the cooperative outcome is better. Even when people have an incentive to coordinate, people tend NOT to cooperate (want the outcome to be 3,1 instead of 4,4). Gender plays a role: men are less cooperative than women Occupation : college students vs. small business owners Small business owners are less cooperative Drugs : o Librium – more o Amphetemines - less
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Measurement Costs Bargainers spend too much time measuring the quality of the time
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10-5-09 - Economics Class Notes 10/5/09 Costs of using the...

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