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Class notes Markets and Regulation (RGBER10005) €9,39   In winkelwagen

College aantekeningen

Class notes Markets and Regulation (RGBER10005)

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This document includes all of the lectures and I have added the professor's detailed explanation as well to make it easier to understand the theory and the curves/graphs.

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  • 17 juni 2022
  • 61
  • 2021/2022
  • College aantekeningen
  • Edwin woerdman
  • Alle colleges
Alle documenten voor dit vak (1)
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neszter2000
Markets and Regulation
2022




1

,Week 1


Legal Relevance

- individuals weigh costs and benefits
o individuals weigh costs and benefits when making actions
o individuals are boundedly rational
 they are certain limits to their rationality
- judges stress the role of efficiency in law
- economics is a way of looking at law
- lawyers confronted with economic arguments
- efficiency more important due to liberalization and privatization of previously
government-owned things


Central question

- how to balance efficiency with the rule of law in the regulation of markets in an
international and European context?


Efficiency

- core principle no.1
- most important concept – center of economics
- many different meanings of efficiency:
o Economic efficiency: cost-benefit
 maximizing net benefits: maximizing the difference between costs and
benefits
 aim: the highest possible benefits and the lowest possible costs
o Cost-effectiveness: costs only
 if one is only considering the costs
o Transaction costs: information costs, bargaining costs, monitoring costs,
enforcement costs
o Pareto efficiency:
 no-one can be made better-off without making someone else worse-
off
 example:
 if someone is given a euro, but that is taken away from
another, then it is not Pareto-efficient




2

,Welfare

- core principle no. 2
- ‘the happiness of people’
- analytical basis: welfare economics
o do legal rules increase welfare?
- welfare=utility=satisfying people’s desires
o desires can be
 monetary
 for example a raise in salary
 non-monetary
 for example: being calm (?)
- welfare is subjective and indifferent
o subjective
 similar phenomenon increases welfare for some, decreases for others
o indifferent
 people’s preferences are not judged
 it is neutral for economists
- scarcity
o people have limited means
o for example:
 limited amount of money, labour
o people want to achieve the highest possible welfare, but they have limted
means so they need to make decisions


Transaction

- core principle no. 3
- Transaction = transfer of property rights
o for example:
 paying the tuition fee and receiving education
- Simultaneous economic and legal change:
o Physical transfer of good or service
o Economic transfer of money
o Legal transfer of property rights
- Transaction costs:
o there are certain costs associate with transaction
o but these costs imply higher benefits (for the person)
 has to be higher than the costs, otherwise the transaction is not
happening
o e.g. notary costs




3

, Economic approaches

- Neo-classical economics:
o Production costs
o Rationality (perfectly rational)
- Neo-institutional economics:
o Transaction costs
 not just production but transaction costs as well
o Bounded rationality
 taking into consideration the limits of rationality
- Behavioral economics:
o the mix of psychology and economics
o Cognitive costs
o Predictable irrationality



Measuring costs and benefits

- the importance of striving for rational decisions, and striving for efficiency
o one tries to maximize net benefits
o three ‘lessons’
 don’t forget opportunity costs
 ignore sunk costs
 relevant costs and benefits are marginal
- 1. Opportunity costs
o the value of the next-best alternative that must be forgone in order to
undertake an activity
 example:
 instead of watching the lecture something else could be done
 the revenues/benefits are higher than the other activity’s
benefits
 Rational decisions always depend upon opportunity costs
 Opportunity cost is value of next-best alternative
- 2. Sunk costs
o those costs that will be incurred whether or not an action is taken
o the expenditures that one made in the past and don’t pay a role anymore
when deciding about the future
 Irrelevant to decision whether to take an action
 Rational decision-makers compare benefits only to the additional costs
that must be incurred
 only possible future actions matter
- 3. Relevant costs and benefits are marginal
o At every step: compare the additional costs and benefits of that step before
taking it


4

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