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Conflict, wages, and multiple equilibria, a private path to prosperity

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  • Hernando Zuleta

    ()

  • Veneta Andonova

    ()

Abstract

Firms´ compensation practices affect the protection of investors´ interests and the degree of economic inequality by changing the stakes of engaging in appropriation activities versus respecting the status quo. We use a general equilibrium model where workers can either work peacefully or join a guerrilla movement that expropriates entrepreneurs. If workers are peaceful, they receive a competitive wage. If they join a guerrilla movement, they receive a share of the appropriated wealth, which depends positively on the number of guerrilla members. In this framework, we find one low-income, low-wage equilibrium with guerrilla activity and one peaceful, high-income, high-wage equilibrium. The peaceful equilibrium can be reached through redistribution policies such as efficiency wages, which are also used to control agency problems. In essence, through their compensation policies entrepreneurs might be able to control the internal principal-agent issues and simultaneously protect their assets against expropriation, while alleviating economic inequality.

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Bibliographic Info

Paper provided by UNIVERSIDAD DEL ROSARIO in its series DOCUMENTOS DE TRABAJO with number 002181.

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Length: 27
Date of creation: 01 Oct 2006
Date of revision:
Handle: RePEc:col:000092:002181

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Keywords: conflict; efficiency wages; general equilibrium; income distribution; multiple equilibria;

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References

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  1. Herschel I. Grossman, 2000. "The Creation of Effective Property Rights," NBER Working Papers 7897, National Bureau of Economic Research, Inc.
  2. Veneta Andonova & Hernando Zuleta, 2007. "The effect of enforcement on human resources practices: A case study in rural Colombia," International Journal of Manpower, Emerald Group Publishing, vol. 28(1), pages 344 - 353, April.
  3. Richard B. Freeman, 1996. "Why Do So Many Young American Men Commit Crimes and What Might We Do About It?," NBER Working Papers 5451, National Bureau of Economic Research, Inc.
  4. Roemer, John E., 1998. "Why the poor do not expropriate the rich: an old argument in new garb," Journal of Public Economics, Elsevier, vol. 70(3), pages 399-424, December.
  5. Skaperdas, Stergios, 1992. "Cooperation, Conflict, and Power in the Absence of Property Rights," American Economic Review, American Economic Association, vol. 82(4), pages 720-39, September.
  6. Grossman, Herschel I, 1991. "A General Equilibrium Model of Insurrections," American Economic Review, American Economic Association, vol. 81(4), pages 912-21, September.
  7. Skaperdas, Stergios & Syropoulos, Constantinos, 1997. "The Distribution of Income in the Presence of Appropriative Activities," Economica, London School of Economics and Political Science, vol. 64(253), pages 101-17, February.
  8. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
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Cited by:
  1. Hernando Zuleta & Juanita Villaveces, 2008. "Conflict and negotiation: a game theoretical approach," DOCUMENTOS DE TRABAJO 005148, UNIVERSIDAD DEL ROSARIO.

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