Efficient equilibria in a differential game of capitalism |
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| Affiliation: | 1. Department of Economics, Oregon State University, Corvallis, OR, USA;2. Department of Applied Economics, University of Maryland, College Park, MD, USA;3. Department of Economics, Southern Illinois University, Carbondale, IL, USA;4. Department of Accounting, Economics and Finance, Southeast Missouri State University, Cape Girardeau, MO, USA |
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| Abstract: | One considers a differential game of capitalism ‘à la Lancaster’. Feedback Nash equilibria and Pareto optimal solutions are characterized under the assumption that the planning horizon is infinite. It is then shown that, by combining a Pareto optimal solution with the Nash feedback equilibrium strategy pair, which plays the role of a threat, one can obtain an efficient equilibrium which is also subgame perfect in the sense of Selten. This result modifies sensibly the previous interpretation of the inherent inefficiency of capitalism. |
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