Chap011.6 - Slide 34 Positional Externalities When Payoffs...

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6 Chapter 11: Externalities and Property Rights Slide 31 Property Rights and the Tragedy of Commons ± The Effect of Private Ownership z When the right to control the commons is auctioned, the highest bidder will have an incentive to consider the opportunity cost of additional use. z Common property is not used efficiently. z Need ability to exclude use by others. Chapter 11: Externalities and Property Rights Slide 32 Property Rights and the Tragedy of Commons ± Private ownership may be impractical. ± Economic Naturalist z Why do blackberries in public parks get picked too soon? z Why are shared milkshakes consumed too quickly? Chapter 11: Externalities and Property Rights Slide 33 Positional Externalities ± When Payoffs Depend on Relative Performance z In a competitive situation: ² There is an incentive to take an action to increase the odds of winning. ² The overall gain to the players as a group will be zero. Chapter 11: Externalities and Property Rights
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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.

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