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Market Failure or Success

The New Debate

Edited by Tyler Cowen and Eric Crampton

Recent years have seen the development of new theories of market failure based on asymmetric information and network effects. According to the new paradigm, we can expect substantial failure in the markets for labor, credit, insurance, software, new technologies and even used cars, to give but a few examples. This volume brings together the key papers on the subject, including classic papers by Joseph Stiglitz, George Akerlof and Paul David. The book provides powerful theoretical and empirical rebuttals challenging the assumptions of these new models and questioning the usual policy conclusions. It goes on to demonstrate how an examination of real markets and careful experimental studies are unable to verify the new theories. New frontiers for research are also suggested.
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Chapter 15: Non-prisoner's dilemma

Gordon Tullock


15. Non-prisonerÕs dilemma Gordon Tullock1 1. INTRODUCTION The prisonerÕs dilemma, since it was introduced more than 50 years ago,2 has led to a very large amount of both theoretical and experimental work.3 Its general importance for many purposes is real, but most of our transactions in the real world do not involve prisoners. I can choose the store that I buy from, and, in theory if they wanted to they could refuse to sell things to me. In dealing with other people in general, I am not prevented from communicating with them and I am not forbidden from choosing my partners. I am also not prevented from changing partners at will. In all of these ways real life in most cases differs substantially from the case of the prisoners. Most experiments have followed the prisonerÕs model in producing the dilemma. The people playing are selected by the experimenter, are not permitted to communicate, and cannot ÔfireÕ their partner. It is not true that all of the existing experiments follow this pattern, but most of them do and most of them are designed to determine something other than the effect of these particular restrictions. 2. MATRIX INSTRUCTIONS Some time ago I wrote a paper in which I argued that a very large part of real world interactions do not occur in prisonerÕs dilemma situations.4 I argued that most commercial and social dealings do not meet these strict conditions for the prisonerÕs dilemma, and different results...

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