A Game Theoretical View on Efficiency Wage Theories
AbstractThe efficiency wage theory developed by Akerlof (1982) assumes observability of effort and the ability of firm and worker to commit on their effort/wage decisions. We show that, from a game theoretical point of view, we have to understand the firm/worker relationship as a repeated Prisoner's dilemma. Therefore, cooperation is per se not a (subgame perfect) Nash equilibrium and hence the Akerlof (1982) theory is based upon an implicit assumption of cooperation, which can not be implemented w.l.o.g.. In addition, we find that this approach is a special case of the Shapiro and Stiglitz (1984) approach and hence unify the two approaches.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 18026.
Date of creation: Oct 2009
Date of revision:
Efficiency Wage; Prisoner's Dilemma; Repeated Game; Subgame Perfect Nash Equilibrium.;
Find related papers by JEL classification:
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-24 (All new papers)
- NEP-BEC-2009-10-24 (Business Economics)
- NEP-GTH-2009-10-24 (Game Theory)
- NEP-LAB-2009-10-24 (Labour Economics)
- NEP-MIC-2009-10-24 (Microeconomics)
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