Roads, Public Goods, and Focal Points
The Answer Is Transaction Costs
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The Economic Joke: Should We Drive on the Left or the Right?
This week's economics joke is about the problem of transactions cost. Transaction costs encompass both problems of competition where we have to worry about things like prisoners' dilemma and exchanges or enforcement in the case of free riding. But what most people think about when they talk about transactions cost is this problem of coordination. It's a problem if we don't all drive on the same side of the road.
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