MidtermOnthisexamMean:56StandardDeviation23Not90-100Aetc.VeryRoughProjectionA:80-100B:60-80C:40-60AnApplicationofEconomicstoExamsTheproblemAfteransweringthequestionsyouknowtheanswerto,tenminutesareleftSoyouwritesomethingontheonesyoudon’tknowtheanswertoThishasseveralcostsItwastesyourtimewritingitandminegradingitImightgivesomeonecreditforsomethinghereallydoesn’tknowbecauseheisgoodatfakingitImightfailtogivesomeonecreditforsomethinghedoesknow,becauseIthinkheisfakingitMySolution:20%creditforknowingthatyoudon’tknowsomethingYougetitforleavingaquestionblankorwriting“Idon’tknow”ortheequivalentAppliesonlytoacompletequestion,notapart.Didnotapplyonthemidterm,sinceIdidn’tannounceit.Willapplyonthefinal.SomeGeneralIssuesonthisExamTalkingaboutthesubjectinsteadofansweringthequestion.WhenIcrossstuffoutitdoesn’tmeanitiswrongItmeansitisirrelevanttoansweringthequestionConfusingwhatisefficientwithwhatwillhappenorwhatisintheindividual’sinterestAnimportantmistake,sinceacentralproblemIshowtopreventsituationswherewhathappensisnotefficientForexampleproblemIBTheairlinedoesnotcontrolnoiseWhichisnottheefficientsolutionButisthesolutionthatresultsfromeachpartyactinginhisowninterestCoase’sFinalBook:HowChinaWentCapitalistStrikingfacts20foldincreaseinGDPpercapitafromMao’sdeathto2010.ShiftfromacommunisttoamostlycapitalistsystemWiththeCommunistPartystillincontrolMaostillrevered,socialismstilltheofficialideologyMao’spartofthestoryInfavorofdecentralization,criticalofStalin,butDidn’tknowhowtodoitThesolutiontothecoordinationproblemispricesandtradeAndheknewthatmustbewrongsincethatwouldbecapitalismSohisversionwaslotsofcommunes,mostlyself-sufficientThesystemoscillatedbetweencentralplanninganddecentralizationSincebothfailed,thesolutionmustbeculture,morale,somethinglikethat.TheGreatLeapForward,whichresultedinafaminethatkilledabout30millionpeopleAndthentheCulturalRevolutionWhathappenedafterMaodied?ManyhighstatuspeoplewhohadbeenpurgedcamebackTheyknewtheGreatLeapForwardandtheCulturalRevolutionweremistakesIndeedsomeofthemhadbeenpurgedforrecognizingthatAndtryingtopersuadeMaoNowtheycouldgoabroad,seetherealityofcapitalismConclusion:Wemustbedoingsomethingwrongbutdon’tknowwhatTrylotsofthings,believeinthefactsAndwewillwinoutbecausesocialismisbetterPolicyafterMao’sdeathAttemptstoreformstaterunsector,givemorepowertofirmsMeanwhile,inthemarginsCovertprivatizationoflandFirmsnominallyrunbylocalgovernments,permittedbutdisapprovedofVerysmallscaleprivateemploymentinthecities,tosoakupunemployedTheSpecialEconomicZonesweredeliberatepolicyIntendedtolearnfromcapitalismwhilepreventingcontagionTheexceptiongraduallybecametheruleDualtrackpricing–govtfirmssoldtheirquotaattheofficialprice,butProductionabovethequotacouldbesoldatwhateverpricebuyerswouldpayGavegovernmentofficialsexperiencewithmarketswithinpublicsectorProvidedaccesstoresources,atacost,totheprivatesectorButalsoproducedinefficienciesandcorruptionTheResultPrivatepracticeonthemarginswasverysuccessfulSofirstnotpunishedThenpermitted(agriculture)inparticularlyunsuccessfulplacesThenpushedeverywhereStateownedfirmslargelylosingmoney,atprovincialandlocallevelSomostofthemwereeventuallyprivatizedChinaendedupwithsomestatemonopoliesButmostproductionprivateGovernmentrevenueof~20%ofnationalincome,lowerthanintheU.S.Andtheyredefinedsocialismtobewhatworked

ChinaendedupwithasystemofcompetinginstitutionsLocalgovernmentsmadelocalrulesTheofficialsinchargewereappointedfromthetop,whichlikedeconomicdevelopmentSoofficialshadanincentivetoFindrulesthatworkedAndcopywhatworkedelsewhereIndustrialparkswheretheofficialswereacombinationoflandlordandgovernmentCompetingwitheachotherButtherewerealsowaysofcheatingonthesystemthatCoasedoesnotdiscussOfficialsfacedatradeoffDoagoodjobrunningyourlocalgovernmentandgetpromotedDoacorruptjob,don’tgetpromoted,butcollectbribesMyInterpretationofCoase’sConclusionWhatinstitutionsworkdependondetailsoftransactioncostsandrelatedthingsWhichwedon’tunderstandverywellAndvaryfromonesocietytoanotherSoChinadidbetterinventingcapitalismforitselfbytrialanderrorThanitwouldhavedonefollowingtheadviceofwesterneconomistsBasedontheorypluswhatworkedforoursocietiesEveniftheadvisorshadbeenfromChicagoinsteadofHarvardPropertyAnyquestionsonthechapter?Property:TwoIssues

PropertyvsCommonsShouldeverythingbefreeforeveryonetouseorShouldEverythingbelongtosomeoneOrshouldsomethingsbeproperty,somenotIfso,howdowedecidewhichiswhich?Whatrightsbelonginthebundle?Whenyouownsomething,whatrightswithregardtoitdoyouown?Andhowshouldwedecide?Obviouslyanissueforland.DoIownTherighttowalkoveritTherighttoflyoveritTherighttodigunderitTherighttomakenoiseonit?Loudnoise?Butitisalsoanissueforotherformsofproperty.ConsiderpatentsandcopyrightsPropertyvsCommonsThebenefitsoftreatingsomethingaspropertyAmechanismformovingittoitshighestvalueduseAnincentivetomaintainpropertyAnincentivetomakethingsTherightincentiveIfyoumakeit,itisyoursSoyougeteitherthevalueofhavingitoritsvaluetosomeoneelsewhobuysitAndpaythecostsofmakingit.Ifvalue>costitisworthmakingThecostsoftreatingsomethingaspropertyYouhavetomonitoruseandenforceyourrightsYouhavetobearthecostoftransactingoverit–considertollsvsfreetrespassTheremaybecoststoconvertingunownedresources,suchaswildernessland,topropertyHowImportantIsEachofThese?ThatdependsontheparticularthingthatmightormightnotbepropertyDoesithavetobeproduced?GrainvswildberriesLandvshousing.Istherealimitedsupply?Isoveruseaproblem?ConsiderapatentedideaorcopyrightedworkConsiderwaterfordrinkingorirrigationHowelasticisthesupply?Willnotgettingownershipmuchreduceit?Alotofthingsareproducedforfree—considerfanficBlogsAretherecoststoassigningpropertyrights?Considerland.ItalsodependsonthetechnologiesforenforcingpropertyrightsConsiderthedifferencebetweenIPthatrequiresaprintingpressandthatdoesn’tTechnologiesfordetectingtrespassers.Burglaralarms.DogsConsiderafewExamplesWildberriesinthewildernessNoneedforanincentivetoproducethemButalimitedsupply—whatIpickyoucan’tAssigningandenforcingpropertyrightsishardButperhapspossible,takingadvantageofanaturalpropertyright—knowingwheretheyareIagreetostayoutofyourpartofthewilderness,yououtofmineEnforcedbythefactthatifyoudon’t,Iwon’tLand—surfaceareaoftheworldNoneedtoproduceit(exception—landfill?)Butneedtocareforit,improveit,removeboulders,fertilize,…Ontheotherhand,assigningpropertyrightscouldbecostlyEnforcingiscostlywithlowpopulationdensitiesSoforusesthatdonotrequireimprovement,commonsmightbetherightanswerIP:ThenextchapterSomeRelevantStoriesHowtogetsomeonetoinventgenderneutralpronouns“TheApproximateOptimalityofAboriginalPropertyRights”WhyweowecivilizationtothedogsTheIslandthatfloateddowntheMississippiRiverThebiggestmistaketheU.S.governmentevermadeOrwasit?Howwouldyouhaveconvertedthecountrytoprivateproperty?Rentseekingordistributeddefense?OrientalBuffets–DesignedtomakealiarofmeTheInternetasacommonsWhatisaworkablesystemofpropertyrightsforaccessingpages?Woulditbeanimprovement?WhatBelongsintheBundle?ConsiderthecaseoflandWhichrightsbelongtogetherIt’shardtofarmlandifyoucan’twalkonitOrifotherpeoplearefreetotrampleyourcropsNotasbigaproblemifyouaregrowingtreesWhichrightsareclearlymorevaluabletosomeoneelse?Miningundertheland,especiallybeforethegpswasinventedSilverminerswereentitledtofollowtheundergroundseamoforeOntheotherhand,ifyoudigoutallcoalundermyland…FlyingoverthelandoncewehaveairplanesBroadcastingacrossitWhicharevaluabletotwoormorepeople?MakingloudnoisesonmypropertyDiggingoutthedirtonmylandnexttoyourhouseIfwegetthebundlingwrong,howeasilycanitbefixed?Thatgetsusbacktopropertyvsliability,transactioncosts,andallthatstuffIflandownersowntherighttocontrolradiobroadcastsandoverflightsIthadbetterbealiabilityright,notapropertyrightSupermajorityvoteforrebundlingmineralrights--unitizationPropertyRightsforSpaceAssumewegetmuchbetteratgettingthingsupcheaplyWhatsortofthingsoughttob