15.021/11.433  Real Estate Economics

Thanks!

Thanks for the great semester everyone! You guys learned a lot and it has shown in your work. Now go enjoy the break, you have earned it!

Lyndsey

Announced on 21 December 2013  10:39  a.m. by Lyndsey Anne Rolheiser

Office hours and exam info.

The exam will begin at 10:30 tomorrow in the regular lecture room. It is 1.5 hours.

Office hours will be at 3:30 today.

Lyndsey

Announced on 16 December 2013  11:09  a.m. by Lyndsey Anne Rolheiser

2012 exam & soln posted

Announced on 13 December 2013  1:27  p.m. by Lyndsey Anne Rolheiser

Office hours monday

Sorry for spamming your inbox yet again! I will have office hours on Monday at 4pm. Likely in 9-555.

Lyndsey

Announced on 13 December 2013  12:54  p.m. by Lyndsey Anne Rolheiser

Pset 5 solutions and note on externalities

Hi everyone,

I have posted solutions to the non-regression parts of the problem set. They can be found in the pset 5 link.

Also, regarding the cooperative solution versus the competitive solution, I don't think I was very clear yesterday. This is how you should think about the question:

It all depends on how the externality enters into the problem. In the example we looked at in recitation, an increase in agent 2's FAR negatively affected agent 1's price. In the cooperative solution, the social planner internalizes the disutility each agent has on the other. To do this, you set the FARs equal to each other and solve.

However, in the competitive problem, the agent only considers their own FAR (solves their maximization problem taking the other agent's FAR as given).

Consider the following thought experiment, suppose agent 2 assumes that they are playing the cooperative game and set's her FAR to the social planner level (lower than the NE level). The first agent can deviate and choose a higher FAR and make more profits.This will cause the other agent to also want to deviate since they are worse off now. Thus, when you have agent's acting in their own self interest they will try to increase the FAR. This increase war happens until they hit the NE. At this point, neither agent can profitably deviate.

In sum, you require a central decision maker to keep both agents at the welfare maximizing level, otherwise they will deviate to the NE.

Somewhat long winded, but I hope this makes sense now.

Announced on 13 December 2013  9:25  a.m. by Lyndsey Anne Rolheiser