Macroeconomics Exam Review 2

Macroeconomics Exam Review 2 - 1.66 The usual way to model...

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Unformatted text preview: 1.66 The usual way to model a cost allocation problem as a TP-coalitional game is to regard the potential cost savings from cooperation as the sum to be allocated. In this example, the total joint cost of 6530 represents a potential saving of 1530 over the aggregate cost of 8060 if each region goes its own way. This potential saving of 1530 measures ( ). Similarly, undertaking a joint development, AP and TN could satisfy their combined requirements at a total cost of 6890. This compares with the standalone costs of 7100 (= 1870 (AP) + 5330 (TN)). Hence, the potential cost savings from their collaboration are 210 (= 7100 - 6890), which measures ( , ). By similar calculations, we can compute the worth of each coalition, namely ( ) = 0 ( , ) = 210 ( ) = 0 ( , ) = 770 ( ) = 1530 ( ) = 0 ( , ) = 1170 An outcome in this game is an allocation of the total cost savings...
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This note was uploaded on 01/16/2012 for the course ECO 2024 taught by Professor Dr.dumond during the Fall '10 term at FSU.

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