Note 1
This is a problem about the dierence between social and private costs.
There are two ways to travel between cities A and B. The train costs $1 and the
trip takes one hour. Each individual values his time at $1.50 per hour. Assume
that the duration
Quiz #1, Jan 18
Econ 332
Last Name
First name
1. What is division of property? What is the economic rationale for the
division of property?
2. What is the nder-keeper principle of ownership? Illustrate with an
example and discuss the ine ciency problems t
Econ 332, Spring 2011
part 2
Harrison Cheng
Law and Economics
For the rational study of the law, the blackletter man may be the man of the present,
but the man of the future is the man of
statistics, and the master of economics.
(Oliver Wendel Holmes, 18
Its going to be short answer
Review Sturges v. Bridgman
o Coase Theorem If the costs to Sturges and Bridgeman of reaching a private
agreement are low then the legal ruling will not influence the use of resources and
that use of resources will be efficient
Note 4 with assignment 4:
8. optimal public good allocation problem
There are 100 citizens. Each has w amount of private good: Assume that x
p
unit of provide good can be converted to y = f (x) = x unit of public good.
Each citizen can have access to the
Contracts (chapter 13&14)
We make promises all the time, and many
business transactions that are not simultaneous
exchanges are based on promises.
When promises are not enforceable, many
important transactions cannot occur.
Two main questions that need
Syllabus for Econ 332
Contracts, Organizations, and Institutions
Prof. Harrison Cheng
Spring 2011
Class Meeting: TuTh 2-3:50 am, room KAP 146
Office Hours: M 10-12 am, Th 4-6 pm
My Office: KAP 324F, Tel: 213-740-2105, email address: [email protected]
TA: Yu
A model of information acquisition
Veriable information means that the information can be conveyed eectively to the third party.
Veriable information and unraveling: Veriable information, combined with
legal enforcement, often leads to unraveling. When un
Note 7
Optimal level of law suits:
Assuming strict liability: injurer is liable when accident occurs.
1. The volume of lawsuit can be excessive. The following is an example.
Suppose we have a unilateral model in the pedestrian-motorist game. This
means th
Note 8 on criminal law
1. Optimal sanctions when the probability of imposition is given. Let h be
the harm and p the probability of imposition of the sanction. If the probability
of sanction is given due to the xed size of the police force, the magnitude
Note 5 with homework assignment 5
Risk Aversion and Insurance
Dominance solvable vs Nash equilibrium:
A Nash equilibrium is a static concept. It tells you what property you need
to be in equilibrium. The property is that each party has an optimal response
Note 3 with homework #3
4. How to charge an optimal toll on drivers
An optimal toll will make the number of drivers on the road socially optimal.
Assume that we can charge a toll on drivers getting into city B. This toll is
added to the cost of a driver.
Note 2, with homework assignment 2
homework due Jan 25
2. The principal-agent model: separation of ownership and control can lead
to ine ciency also
Let the benet from exerting eort x be x; and the cost of exerting eort is
x2 : The optimal level of eort i
Econ 332
HW #7
Jing Lu
1.
a) The minimum amount that the plaintiff will accept in settlement is $100,000*0.6 - 20,000 = $40,000.
b) The maximum amount that the defendant is willing to offer is $100,000*0.3+25,000 = $55,000
c) 55,000 > 40,000. So there is
Econ 332
HW #6
Jing Lu
1.
a) Under an optimal complete contract, the seller delivers product only when the cost does not exceed the buyer value.
The seller does not deliver product when the cost exceeds the buyer value. In this example, the seller deliver
Econ 332
HW #5
Jing Lu
1. a) If the motorist is risk neutral, the expected payoff from exercising due care is 120 50 10 = 60. The expected
payoff from no care is 120 100 = 20. Thus a risk neutral motorist will exercise due care.
b) If the motorist is risk
Econ 332, Quiz #3
Feb 3
1. The principal-agent model: separation of ownership and control can lead
to ine ciency.
Let the benet from exerting eort x be x; and the cost of exerting eort is
x2 :
(a) What is the e cient level of eort ?
(b) However, if you ha
Quiz #4, Feb 17
Essay Questions: (you don get credit if you don explain your answer)
t
t
1. (2 point) (a) In the acquisition of unowned property, one principle used
is the nder-keeper principle. When there are multiple individuals involved in
nding the un
Contracts (chapter 13&14)
We make promises all the time, and many
business transactions that are not simultaneous
exchanges are based on promises.
When promises are not enforceable, many
important transactions cannot occur.
Two main questions that need
In addition to the following work to be submitted, please do the readings up
to chapter 10 this week.
Homework #4 (expanded)
Due Feb 15
1. In the public good allocation problem, there are 200 citizens. Each has w
amount of private good: Assume that x unit
Econ 332, Spring 2011
Getting Acquainted Quiz
Last name
rst name
1. True or False: In Japan, workers cannot be red once they have been
hired, and therefore in Japan a minimum wage law (where the minimum would
be set above the wage that would cause the mar
Game theory
A formal means of modeling strategic interaction.
Developed by von Neumann and Morgenstern in the
1940s.
Two or more players who must choose among various
strategies either sequentially or simultaneously.
Nash equilibrium.
Developed by John Na
SICK INSURANCE
The Trials of Health Care Reform in America
DANIEL McFADDEN
U.C. Berkeley and USC
February 17, 2011
Health Care Reform: Obamacare
The Patient Protection and Affordable Care Act (ACA) of
2010 is a major government intervention in health car
Assignment #6
Due April 7
1. Under legal regime 1, assume that in the production contract problem,
the costs of production are given by the stochastic environment: $20 (low)
with probability 0.3, $60 (moderate) with probability 0.5, and $200 (high) with
p
Answers for hw 4:
1. The total payos of the citizens is
i
h
x
200 w
+ x0:5
200
Take the derivative with respect to x; we get
200(
1
+ 0:5x
200
0 :5
)=0
or
x0:5 = 100;
and we get the optimal input x = 10; 000 with the amount 100 units of public
good produc
Answers for Assignment #6:
1. (a) optimal contract is to produce and deliver when cost is either 20 or 60.
(b) The damage measure is 100-70=30. (c) seller will produce when c < 200;
not produce when c > 200: (d) The damage measure is 80-70=10. (e) optimal
Answers for hw 5:
1. (a) If the motorist is risk neutral, the expected payo from exercising
due care is (in money terms) 120 55 10 = 55: The payo from no care is
120 100 = 20: Thus a risk neutral motorist will exercise due care under strict
liability.
(b)
Answers for HW2:
1. a. To determine the number of drivers on the road, we set the private
marginal cost of driving to that of taking the train which is 1.25+1.50=$2.75.
We have
0:8 + 0:075N = 2:75:
Hence N = 26: More people drive because they switch from
Additional information
Health Insurance Reform
A health insurance exchange is a new
entity intended to create a more organized
and competitive market for health
insurance by offering a choice of plans,
establishing common rules regarding the
offering and
Econ 332
HW #4
Jing Lu
x
+ x 0.5 ) . This should be maximized in the optimal
200
1
allocation problems. Take the derivative of this with respect to x, we get 200(
+ 0.5 x 0.5 ) = 0 ,
200
1. The total payoff of the citizen is 200( w
so x 0.5 = 100 or x =