Chap011.7 - assuming all other variables are the same Both...

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7 Chapter 11: Externalities and Property Rights Slide 37 Positional Externalities ± Positional Externality z When an increase in one person’s performance reduces the expected reward of another in situations in which reward depends on relative performance Chapter 11: Externalities and Property Rights Slide 38 Positional Externalities ± Economic Naturalist z Why do grocery stores stay open all night, even in small towns? Chapter 11: Externalities and Property Rights Slide 39 Positional Externalities ± Economic Naturalist z Two stores considering whether or not to stay open until 1:00 a.m. Chapter 11: Externalities and Property Rights Slide 40 Payoff Matrix for Extended Shopping Hours Third best for each Best for Tops Worst for Wegmans Best for Wegmans Worst for Tops Second best for each Close at midnight Wegmans Tops Close at 1:00 A.M. Close at midnight Close at 1:00 A.M. Customers will choose the store with the most convenient hours,
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Unformatted text preview: assuming all other variables are the same Both stores will stay open Why will they stay open 24 hours? Could a local law solve their problem? Chapter 11: Externalities and Property Rights Slide 41 Positional Externalities Positional Arms Race z A series of mutually offsetting investments in performance enhancement that is stimulated by a positional externality? Positional Arms Control Agreements z An agreement in which contestants attempt to limit mutually offsetting investments in performance enhancements Chapter 11: Externalities and Property Rights Slide 42 Positional Externalities Positional Arms Control Agreements z Campaign spending limits z School uniforms Social Norms as Positional Arms Control Agreements z Norms against excessive vanity...
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