lecture19 - Economics 103 Lecture # 19 Transaction Cost...

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Economics 103 Lecture # 19 Transaction Cost Economics Continued
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So transaction costs are the costs of establishing and maintaining economic property rights. So what? This leads to our seventh and final economic principle:
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If TC = 0 organization doesn’t matter (the Coase theorem). If TC > 0, then people organize to minimize these costs. In order to understand Property rights, then, we must understand transaction costs. Let’s use this notion of transaction costs to understand some simple property right distinctions.
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Private Property - you have the economic right to exclude, transfer and enjoy an asset. - let’s suppose you have these rights at zero transaction costs. Suppose you own a boat, and there is a lake with fish in it. You can always catch 4 fish on shore, but you can catch more fish with the boat. You have to decide how many fishermen should be in the boat.
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As we’ve seen before, you hire L* fishermen, and this maximizes the value of the boat (equal to the shaded area). Private property looks pretty good.
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This note was uploaded on 06/24/2011 for the course ECON 103 taught by Professor Hanafiahharvey during the Spring '08 term at Simon Fraser.

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lecture19 - Economics 103 Lecture # 19 Transaction Cost...

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