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From Jungle to Civilized Economy: The Power Foundation of Exchange Economy Equilibrium

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  • Schwarz Mordechai E.

    (Department of Economics and Management, The Open University of Israel, 1 University Road, Raanana43537, Israel)

Abstract

This article explores the evolution of a civilized exchange economy from an anarchistic environment. I analyze a model of stochastic jungle bargaining mechanism and show that it implements the Talmud Rule allocation (Aumann, R. J., and M. Maschler. 1985. “Game Theoretic Analysis of a Bankruptcy Problem from the Talmud.” Journal of Economic Theory 36 (2): 195–213.) in subgame perfect equilibrium. This Pareto-inefficient allocation constitutes the initial endowment of a stable exchange economy and supports stable Walrasian equilibria, implying that civilized economies could evolve from a Hobbesian state of nature without social contract or regulator. The moral implications of these results are also briefly discussed.

Suggested Citation

  • Schwarz Mordechai E., 2019. "From Jungle to Civilized Economy: The Power Foundation of Exchange Economy Equilibrium," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 19(2), pages 1-14, June.
    • Handle: RePEc:bpj:bejtec:v:19:y:2019:i:2:p:14:n:3
    DOI: 10.1515/bejte-2017-0085
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    References listed on IDEAS

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    More about this item

    Keywords

    bankruptcy; contest; anarchy; jungle;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D71 - Microeconomics - - Analysis of Collective Decision-Making - - - Social Choice; Clubs; Committees; Associations
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • H0 - Public Economics - - General
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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