Strat 737 Final
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- Robert Solow said
- can substitute other factors for natural capital, this will be driven by decreasing supply and increasing price
- Hotelling said
- move up curve as price keeps rising then hit “backstop†technology and price flatlines. So as you move up the curve, the resources are exhaustible, the new tech (alt energy) is renewable
- WEA scenarios differ across (4 categories)
- -energy use -economic growth -environmental quality -equity across time and across people
- Andy Grove's key points
- -energy independence makes no sense -we should protect US from interruptions in supply -resilience is the goal
- Hayek said
- Markets, via prices, process large amounts of information in a highly decentralized manner that can respond quickly to changes in local conditions and that require a minimum of information be transmitted to each individual.
- Characteristics of a competitive market
- -well-defined property rights -no transaction costs -many buyers and sellers -homogeneous product -free entry and exit -perfect information -no externalities
- Herfindahl-Hirshman Index (HHI)
- HHI = 10,000 * (sum Si^2) HHI of 1,800 or greater is highly concentrated
- Characteristics of an oligopoly
- -relatively few firms -products may be differentiated or homogenous -entry barriers exist -firms have market power
- Nash equilibrium
- occurs when each player is making his/her best response, given what the other is doing.
- What is backwardation?
- yield curve is declining over time – in the future, they think prices will be lower
- What is contango?
- yield curve is increasing over time so futures price is higher than current spot price
- What is a long?
- Buy at fixed price p. Payoff = f - p [consumers]
- What is a short?
- Sell at fixed price p. Payoff = p - f [producers]
- What did Coase say?
- “The Nature of the Firm†(1937): The transaction costs of using the price system lead to the creation of firms – individuals can’t handle the high costs The “Coase Theoremâ€: With zero transaction costs, bargaining would lead to wealth maximization, regardless of initial allocation of property rights!
- What did Williamson say?
- Recognized 4 levels of institutions The ones at the top don’t change very fast – last for hundreds of years L2 – last for a while but do change L3 – how do we play the game L4 – daily decisions
- Sherman Act (1890)
- illegal to monopolize -ok to have a monopoly but not ok to try to get one
- Clayton Act (1914)
- Illegal to lessen competition
- Govts can fail (3 pts)
- -rational ignorance -agency problems -rent seeking
- Markets can fail (4 pts)
- -externalities are significant -public goods must be provided -information problems are large -firms have monopoly power
- Williamsonian "market safeguard" examples
- -long-term contracts -vertical integration