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Unformatted text preview: Slide 34 Positional Externalities When Payoffs Depend on Relative Performance z In a competitive situation: When the payoff depends on relative performance, incentive to invest in performance activities will be excessive from a collective point of view. Chapter 11: Externalities and Property Rights Slide 35 Positional Externalities Economic Naturalist z Why do football players take anabolic steroids? Smith and Jones are competing for a single position and a $1 million contract. Chapter 11: Externalities and Property Rights Slide 36 Payoff Matrix for Steroid Consumption Each has a 50% chance of winning Smith Wins Jones Wins Each has 50% chance of winning Dont take steroids Jones Smith Take steroids Dont take steroids Take steroids Dominant strategy for each yields the third best outcome This prisoners dilemma outcome is solved by banning performance enhancing drugs....
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.
- Spring '08