ABSTRACT
Chapter 1 discusses the two basic issues that society faces: Coordination and cooperation. The key to coordination is forming consistent expectations. The key to cooperation is providing right incentives. Then, we will briefly introduce the concept of the rational person assumption, criticisms of it, and the appropriate use of this assumption. Last, we will discuss evaluations of individual behavior using social standards. We will use numerous examples to show how a Pareto optimum can appear in actual institutional arrangements.
