Institutions and Power

5.1 of The Economy 1.0 & The Economy #3

Briefly speaking, what does institutions entail, and what can it affect?

-The written and unwritten rules of the game.

-They affect how the game is played, the size of the total payoff for those participating, and how said total is divided.

What does power entail? In Economics, where does it find itself in?

-The ability to do and get the things we want in opposition to the intentions of others

-Sets the terms of an exchange - Take-it-or-leave-it offer for example

-May impose/threaten heavy costs, unless the other party benefits the person with power

What does bargaining power entail?

-Extent of one’s advantage in securing a larger share of the economic rents, due to an interaction.

Very briefly, in the labour market, who has the power?

-The power to set the terms of the exchange usually lies with those who own the factory/business - they propose the wages and other terms of employment

-Those seeking employment are like the responders, and there are many responders here, meaning their bargaining power will be pretty low.

-Because the firm is also the employer’s private property, firing the worker is also another enhancement of their power.

What is the dictator game, and where could it be seen in real life?

-Where the Proposer can divide up a pie any way they want, and the Response can only just accept whatever given.

-Thus, the Proposer has all the bargaining power, and the Responder has nothing

-From North Korea, to Slavery in America, to Mexican Drug Cartels.