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68 Cards in this Set
- Front
- Back
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Economic model
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Mapping from exogenous objects to endogenous objects
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Primitives
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Exogenous objects, objects taken as given
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Outcomes
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Endogenous objects
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What maps primitives to outcomes?
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Equilibrium concepts
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What are the five primitives of an economy?
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1) People
2) Preferences 3) Technology 4) Endowment 5) Institutions |
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What are preferences functions of?
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Primitives
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What are four outcomes of an economy?
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1) Consumption
2) Production 3) Investment 4) Prices |
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Efficient allocation
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1) The best outcome possible in this economy without institutions or mechanisms
2) an alocation that is feasible and such that there does not exist another feasible allocation that Pareto dominates it |
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Competitive equilibrium
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A price-allocation vector such taht consumers maximize their utility subject to their budget constraint
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Normal form
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A game with simultaneous actions, in the sense that there is no revelation or information between actions
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What is the equilibrium concept for a normal form game?
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Nash equilibrium
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Extensive form game
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Game with sequential actions, in which there is observability of actions
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What is the equilibrium concept for an extensive form game?
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Subgame perfect equilibrium
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Nash equilibrium
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Pair of strategies (one for each player) such that no player has an incentive to unilaterally deviate given the strategy of the other player
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Subgame perfect equilibrium
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A pair of strategies that induces a Nash equilibrium for every subgame
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Political system
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A set of institutions that aggregate the preferences of everyone who live in a society into collective outcomes
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What are the two fundamental forms of democracy?
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1. Direct democracy
2. Indirect democracy |
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Direct democracy
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Peoplechoose policies direct,y (Ex: referenda in California)
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Indirect democracy
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People choose politicians to represent them and e elected politicians choose policies
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What is another name for indirect democracy?
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Representative democracy
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What are the primitives of a democracy?
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1. The set of eligible voters
2. The set of available alternatives 3. Voters' preferences over alternatives 4. Voting rule |
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Voting rule
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Mechanism that aggregates the preferences of eligible voters, expressed through their voting behavior, into a set of policies for society
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What are the fur voting rules we studied?
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1. Majority/sequential majority rule
2. Plurality rule 3. Plurality rule with runoff 4. Borda count |
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How does a sequential majority work?
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Sequences of pair wise majority rules
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What are two other commonly used names for plurality rule?
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1. Winner take all
2. First past the post |
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How does plurality rule voting work?
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The candidate that receives the largest support is chosen
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What is another name for plurality rule with runoff?
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Runoff rule
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How does plurality rule with runoff work?
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Have first vote. If one candidate wins absolute majority, then there isn't a runoff. If no candidate received an absolute majority, then the top 2 plurality winners face each other in a majority rule runoff.
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How does a Borda Count work?
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Suppose ere are K candidates. Each voter ranks r candidates from most favorite to least favorite. For each voter, the first choice gets K points, 2nd gets k-1 points, etc. whoever/whatever gets the most points wins
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Why are there so many different kinds of voting rules?
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None are perfect
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Arrows impossibility theorem
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If there are three or more alternatives, there does not exist. Voting rule that satisfies the following four properties:
1. Universal domain 2. Unanimity 3. Non-dictatorship 4. Independence of irrelevant alternatives |
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Universal domain
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All preference profiles are admissible/allowed
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Unanimity
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If all people have a most preferred alternative which is the same, then that alternative must be chosen
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Non-dictatorship
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The voting rule should not always select the most preferred alternative by one individual regardless of what everybody else prefers
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Independence of irrelevant alternatives
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The ranking between any two alternatives according to the voting rule should only depend on the individual rankings between the two alternatives, independently of individual preferences over other irrelevant alternatives
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What are the two welfare theorems of economics?
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1. If markets are competitive and complete, goods are private goods, and there are no consumption or production externalities, then every competitive equilibrium is Pareto optimal.
2. If markets are competitive and complete, goods are private goods, and there are no consumption or production externalities, then every Pareto Optimal allocation can be achieved as a competitive equilibrium using lump sum taxes and transfers. |
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What does it mean for an economy to be complete?
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For every good or service that people want, there is a market available for it.
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What is a private good?
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No more than one person can enjoy/consume a unit of a particular good.
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What is a social welfare function?
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An object in economic models that summarizes all equity concerns
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What are the arguments of the social welfare function?
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The utilities of each of the people in the economy, which are themselves functions of their allocations
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What are the three social welfare functions that we studied in this class?
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utilitarian, Samuelson, and Rawlsian
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What is another name for the utilitarian social welfare function?
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Bentham
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What is the general form of the utilitarian social welfare function?
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The welfare is the sum of all of the people in the economys utilities
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What is the general form of the Samuelson social welfare function?
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gammaln(utility of A) + (1-gamma)ln(utility of B) --> Looks like typical indifference curves--> Has diminishing marginal rate of substitution
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What is the general form of the Rawlsian social welfare function?
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The welfare is equal to the minimum welfare.
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What is the MRS for a utilitarian SWF?
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Constant
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Does redistribution depend on relative considerations for a utilitarian SWF (i.e. does the amount of utility that each person currently has matter?)
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No
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Does redistribution depend on relative considerations for a Samuelsonian SWF? (i.e. does the amount of utility that each person currently have matter)
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Yes
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What does the social planner problem do?
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Fully characterizes the economy
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What does the solution of the social planner problem determine?
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Efficiency and equity
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When does the agenda not matter for a sequential majority vote?
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When there is an alternative that defeats all other available alternatives in pairwise majority comparisons
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What is a condorcet winner?
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If it exists, the unique alternative that defeats all other alternatives in pairwise majority comparisons
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What is a condorcet loser?
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If it exists, the unique alternative that is defeated by all other alternatives in pairwise majority comparisons
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Condorcet consistent
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A voting rule is condorcet consistent if it always selects a condorcet winner whenever it exists.
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Is sequential majority condorcet consistent?
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Yes
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What is the issue with plurality?
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It is not condorcet consistent and thus may pick a condorcet loser.
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Is plurality with runoff condorcet consistent?
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No
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Can plurality with runoff choose a condorcet loser?
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No
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Is Bords count condorcet consistent?
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No
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Can Borda count choose a condorcet loser?
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Yes
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What is the issue with Borda count?
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It breaks the independence of irrelevant alternstivrd
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Median voter theorem
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If the space of alternatives is uni-dimensional and ordered and if preferences for all voters over the space are single peaked, then a condorcet winner always exists and the CW is the median of the distribution if peaks in the population of voters
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Sufficient conditions
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If conditions are satisfied, then teh statements of a theorem are true. However, the statements of the theorem can be true even when the conditions are not present
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Single peakedness
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A function f(x) defined over A= Real numbers is single peaked if
1) df(x)/dx is either strictly positive over A or strictly negative over A. 2) There exists a single x such that df(x)/dx at x and d2f(x)/dx is negative. |
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What is Median Voter Theorem 2?
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If the space of alternatives is uni-dimensional and ordered and if there exists a single variable such that all individuals can be ordered according to that variable, and for every alternative people to the left prefer less (more) and people to the right prefer more (less), then a condrcet winner always exists, and the condorcet winner is the alternative most preferred by the individual with the median value of the variable that orders.
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What are the two electoral competition models?
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1) Downsian model
2) Citizen candidate model |
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What are electoral competition models?
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Models of indirect democracy
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What are the distinctive characteristics of the Downsian model?
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1) The # of candidates are exogenously given
2) Candidates are not the same as citizens 3) Candidates and voters have different objectives 4) Candidates compete by promising policies they would implement if elected, and promises are binding |
