1. The Coordination Problem
Solutions
Central Decision Making
Decentralized Decision Making

2. Decentralized Decision Making
If individuals are rational and nobody affects anyone else
If individuals are rational and all effects on others taken into account
To first approximation, prices and voluntary trade do that
Law is largely about dealing with the second approximation

3. Market Failure
Situations where individual rationality does not produce group rationality

4. Prisoner’s Dilemma
Bill and Joe jointly commit a crime, are caught. D.A.’s offer to each:
If neither of you confesses, I can convict you of resisting arrest, 1 year in prison.
If you confess and he doesn’t, I’ll let you off with 3 months
If he confesses and you don’t, you get 3 years.
If both of you confess, you get 2 years

5. Confess
Don’t confess
2 years
3 months
3 years
Don’t Confess
1 year

6. Prisoner’s Dilemma Writ Large
Market Failure
Prisoner’s Dilemma Writ Large

7. Externalities The Problem Solutions Regulation Pigouvian Tax
??? Chapter 4 ???

8. Regulation
What Problems Does it Raise?
Incentives
Information

9. Effluent Fee/Pigouvian Tax/Carbon Tax
What Problems does it Raise?

10. Carbon Tax

11. Or what’s wrong with burglary anyway?
Rent Seeking
Or what’s wrong with burglary anyway?