The Nash–Cournot equilibrium is one of the foundational concepts in industrial organisation, shaping how economists think about competition in oligopolistic markets. It builds on the work of Augustin Cournot, who in 1838 published his seminal Researches into the Mathematical Principles of the Theory of Wealth. Cournot considered the case of two firms (a duopoly) producing a homogeneous good, each deciding how much quantity to supply. He showed that each firm’s optimal output depends on its expectations of the other firm’s decision, and that the interaction of these strategic choices leads to a determinate outcome where neither firm has an incentive to deviate. This equilibrium, rediscovered and reformulated in the twentieth century with the formalisation of game theory, came to be understood as a specific instance of a Nash equilibrium, named after John Nash, who generalised the concept of mutual best responses in strategic settings.
Read MoreThis week, I’ll stitch together some thoughts on our ticket off the Covid-19 train, also known as the “vaccine”. I am prompted by Georges Pearkes’ challenge to come up with why it might be a bad idea to given people $1500, or another monetary amount, as an incentive to take the vaccine. First things first, it’s very possible that our main problem next year is that we won’t have enough of this thing. Paradoxically, the prospect of a vaccine dealing a killer blow to the virus in the middle of next year has created an incentive for authorities to maintain tighter restrictions in the short run—well into Q1, at least—while we wait for the shot. After all, if the virus is gone tomorrow, the cost of an infection today increases, a lot. A reasonable counterpoint is that governments aren’t masochists, and some form of reopening will happen in Q1, but the point I am getting is simple in the end. Assuming the vaccine is rolled out by early Spring, on the back of a miserably semi-locked down winter, it’s more likely than not that people will be scrambling for a jab, especially in an environment where the vaccine becomes a ticket to otherwise restricted activities via a form of passport. In such a situation, we won’t have to pay people to take the shot. We’ll have to make sure it isn’t hoarded. As for the counterpoint, I am not convinced that the rise of anti-vaxxers—known in the literature as "vaccine hesitancy”—can be applied to predict a threat to the effectiveness of Covid-19 vaccine efforts. That said, early survey evidence suggest that hesitancy might be an issue, especially at the margin where the line between failure and success is drawn.
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