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|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
References listed on IDEAS
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.:
- Clemhout, Simone & Wan, Henry Jr., 1994. "Differential games -- Economic applications," Handbook of Game Theory with Economic Applications,in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 2, chapter 23, pages 801-825 Elsevier.
- Roland Bénabou & Jean Tirole, 2006.
"Belief in a Just World and Redistributive Politics,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 121(2), pages 699-746.
- Jean Tirole & Roland Benabou, 2004. "Belief in a Just World and Redistributive Politics," 2004 Meeting Papers 15, Society for Economic Dynamics.
- Jean Tirole & Roland Bénabou, 2006. "Belief in Just World and Redistributive Politics," Post-Print hal-00173678, HAL.
- Benabou, Roland & Tirole, Jean, 2004. "Belief in a Just World and Redistributive Politics," Papers 08-15-2005a, Princeton University, Research Program in Political Economy.
- 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.
- Alberto Alesina & George-Marios Angeletos, 2005. "Fairness and Redistribution," American Economic Review, American Economic Association, vol. 95(4), pages 960-980, September.
- Alberto Alesina & George-Marios Angeletos, 2004. "Fairness and Redistribution," Levine's Bibliography 122247000000000283, UCLA Department of Economics.
- Alberto Alesina & George-Marios Angeletos, 2004. "Fairness and Redistribution," NajEcon Working Paper Reviews 122247000000000306, www.najecon.org.
- Angeletos, George-Marios & Alesina, Alberto, 2005. "Fairness and Redistribution," Scholarly Articles 4553009, Harvard University Department of Economics.
- William D. Nordhaus, 1975. "The Political Business Cycle," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 169-190.
- 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 421-438, May.
- Lancaster, Kelvin, 1973. "The Dynamic Inefficiency of Capitalism," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1092-1109, Sept.-Oct.
- Dockner,Engelbert J. & Jorgensen,Steffen & Long,Ngo Van & Sorger,Gerhard, 2000. "Differential Games in Economics and Management Science," Cambridge Books, Cambridge University Press, number 9780521637329, March. Full references (including those not matched with items on IDEAS)
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: (Joachim Winter)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.