Capitalism and Economic Growth: A Game-Theoretic Perspective
Why has capitalism prevailed as an institution in promoting economic growth despite its apparent unfairness? In this paper, we argue that within a neoclassical framework, capitalism is fairer compared to collectivism due to the absence of a rationally acceptable collective solution. This is demonstrated using a dynamic game with a vote-maximizing government(G) and profit-maximizing representative firm(F). In this GF game, collectivism or cooperation between the players appears to trump capitalism at the aggregate level. Developing countries operating below the steady state may be better off cooperating as they will enjoy positive long term economic growth and profit growth once their capital stock exceeds the steady state level. But this requires them to sacrifice short term growth and possible inequity as the firm's profits grow. Developed countries operating above the steady state will find the cooperative solution attractive since both economic growth and profit growth will be positive. So, from an aggregate level, collectivism or cooperation performs better than capitalism. However, a fair imputation of cooperative or collective solutions which is rationally acceptable for all players does not exist. In every stage of development, the firm always finds it rationally unacceptable to cooperate because the profits earned by the firm under the feedback Nash equilibrium always dominate the profits under cooperation. On the other hand, the government only finds the cooperative solution to be rationally acceptable when the economy is above the steady state. Hence, collectivist cooperation between the government and the firm are not rationally acceptable for both and a fair equilibrium cannot be attained with collectivism.
|Date of creation:||2008|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Benabou, Roland & Tirole, Jean, 2004.
"Belief in a Just World and Redistributive Politics,"
08-15-2005a, Princeton University, Research Program in Political Economy.
- Roland Bénabou & Jean Tirole, 2006. "Belief in a Just World and Redistributive Politics," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 699-746, May.
- Bénabou, Roland & Tirole, Jean, 2005. "Belief in a Just World and Redistributive Politics," CEPR Discussion Papers 4952, C.E.P.R. Discussion Papers.
- Roland Benabou & Jean Tirole, 2005. "Belief in a Just World and Redistributive Politics," NBER Working Papers 11208, National Bureau of Economic Research, Inc.
- Jean Tirole & Roland Benabou, 2004. "Belief in a Just World and Redistributive Politics," 2004 Meeting Papers 15, Society for Economic Dynamics.
- Angeletos, George-Marios & Alesina, Alberto, 2005.
"Fairness and Redistribution,"
4553009, Harvard University Department of Economics.
- Lancaster, Kelvin, 1973. "The Dynamic Inefficiency of Capitalism," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1092-1109, Sept.-Oct.
- Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
- repec:cup:cbooks:9780521637329 is not listed on IDEAS
- Kaitala, Veijo & Pohjola, Matti, 1990. "Economic Development and Agreeable Redistribution in Capitalism: Efficient Game Equilibria in a Two-Class Neoclassical Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 421-38, May.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10472. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.