Session #5Outline:Problem set 1, parts 2 and 3:EfficiencyNo wealth effectsThe Value Maximization PrincipleThe Coase TheoremExamples and discussion
Remember to form group and choose segment!deadline postponed until Thursday (72) / Wednesday (70).For next session:Review test:Readings: M&R, 19-28 & 35-48.Problem set 1, parts 1, 2 & 3. Microhoo case
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No wealth effectsSuppose that several individuals have to make an organizational decision. If the decision made by the individuals depends on the initial distribution of wealth (wealth matters when making the decision) wealth effectsDecision does notdepend on their wealth no wealth effects.No wealth effects≠individuals do not value moneyNo wealth effects = the money the individuals initially have does not affect the decisions they make.For there not to be wealth effects, three conditions must hold.